Construction Arbitration: United Kingdom - England & Wales

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

United Kingdom

England is a common law jurisdiction. The doctrine of precedent means that a considerable amount of English law is to be found in the judgments of the courts, which, to the extent that they develop the common law in their decisions, must be regarded as lawmaking bodies. Statute law, as interpreted by the courts, also forms part of English law. Parliament, as the lawmaking body, makes the law by passing Acts of Parliament. Parliament has the power, by passing Acts of Parliament, to amend the common law as developed by the courts. Much of statute law is classed as subordinate or delegated legislation that is enacted pursuant to powers conferred by Acts of Parliament. A significant part of this subordinate or delegated legislation is drafted on behalf of government ministers in the form of statutory instruments and laid before Parliament for approval. Other subordinate legislation is made by bodies such as local authorities pursuant to powers conferred on them by Act of Parliament for regulating the conduct of certain activities or persons within their area. 

Acts of Parliament and statutory instruments are published by His Majesty's Stationery Office. The electronic text of all United Kingdom statutes and statutory instruments, including a certain amount of updated legislation, is made available to the public without charge on a website dedicated to that purpose. As to publication of court decisions, see question 43.

In civil matters, an amending enactment is generally assumed to change the relevant law only from the time of the enactment's commencement. However, it may provide, expressly or by implication, that its effect is retrospective. Depending upon the circumstances, some court judgments can have retrospective effect, for example, where they extend a principle into areas to which hitherto it had not been thought to apply.

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

United Kingdom

Contract formation is generally judged objectively, ignoring the subjective expectations and unexpressed reservations of the parties. For a construction contract to be formed it is traditionally said there must be an offer by one party to the other and acceptance of that offer by the other party, but sometimes contracts exists without an obvious offer and acceptance by the conduct of the parties. There must also be (unless the contract is executed in a special way – as a deed) "consideration" (usually something that one party promises the other party that it will do or not do). In addition, there must be an intention on the part of both parties to create legal relations and the terms of the contract must be sufficiently certain. A construction contract does not have to be in any particular form (eg, no signatures are required), nor does it have to be in writing.

A letter of intent will be enforceable if it constitutes or evidences a binding contract as outlined above. Alternatively, it may provide evidence to support a claim for payment in "quasi contract". Such a claim may arise where one party has carried out works or provided services at the request of the other in circumstances where it would be unjust to allow the latter to have the benefit of those works or services without paying for them.

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

United Kingdom

Parties are free to choose any of the above, except that (i) they cannot by choosing a law other than English law avoid mandatory provisions of English law; (ii) where the seat of the arbitration is England, the chosen arbitration rules must comply with the mandatory requirements of the Arbitration Act 1996; an award reached by applying non-compliant rules may be open to challenge; and (iii) the chosen arbitrator must be free from bias, failing which he or she may be removed by the court. Alternatively, his or her award may not be enforceable.

4. How might terms be implied into construction contracts? What terms might be implied?

United Kingdom

Terms may be implied into construction contracts by law, necessary implication or statute.

I Terms commonly implied into construction contracts by law or necessary implication:

(a) By the contractor:

(i) to use materials of good quality;

(ii) to carry out its work with reasonable care and skill;

(iii) that both materials and workmanship, and in some cases the works themselves, will be reasonably fit for the purposes for which they are required, unless the circumstances of the contract are such that there has been no or insufficient reliance upon the contractor in this respect;

(iv) to complete the works in a reasonable time.

(b) By the employer:

(i) to do all that is necessary on its part to bring about completion of the contract (eg, provide information within a reasonable time);

(ii) not to hinder or prevent the contractor from carrying out its obligations under the contract;

(iii) to pay a reasonable price.

The terms outlined above will not be implied if they are inconsistent with the express terms of the contract.

For further reading, see Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd (2015).

II Terms implied by statute into most construction contracts:

(a) Housing Grants, Construction and Regeneration Act 1996 (as amended) and statutory instruments made under it (the Construction Act):

(i) Payment must be made by instalments by reference to an adequate mechanism for determining what payments become due and when, with a final date for payment of the amounts due. Payments notified as due must be made unless notice has been given prior to the final date for payment setting out the basis upon which the reduced amount is calculated. To the extent that the contract does not contain provisions dealing with these matters, default rules apply as set out in the legislation.

(ii) Payment under a construction contract cannot be made conditional upon: (a) the payer having received payment from a third party, unless the third party is insolvent, or (b) the performance of obligations under another contract or (c) the decision by any person that such obligations have been performed.

(iii) The contractor has a right to suspend work for non-payment with a right to an extension of time and payment of expenses in respect of any delay thereby caused.

(iv) Either party may refer to adjudication (a speedy interim dispute resolution process) any dispute arising under the contract (ie, not just a payment dispute). If the contract fails to provide for this, default rules apply as set out in the legislation.

The rules outlined in II(a) above (which in effect act as implied terms) cannot be excluded by agreement. They have effect even if English law is not the governing law of the contract.

(b) Late Payment of Commercial Debts (Interest) Act 1998 (as amended) and the statutory instruments made under it (the Interest Act):

(i) Imposes a maximum payment period of 30 days (where the employer is a public authority) or 60 days (in other cases). There are various possible dates when the payment period may start but, generally this will be the later of the date that the work was carried out or the employer received the contractor’s invoice. A longer payment period is permissible unless it is grossly unfair.

(ii) Any obligation under the contract to pay the contract price carries simple interest at 8 per cent over the Bank of England minimum lending rate from the date when payment was required to be made until the date of payment.

(iii) Any contract term is void to the extent that it purports to exclude the right to statutory interest unless there is a substantial contractual remedy for late payment.

(iv) The Act has effect notwithstanding that the contract is governed by non-UK law if but for that choice the applicable law would be the law of any part of the UK and there is no significant connection between the contract and any country other than that part of the UK.

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

United Kingdom

Where a person is employed by the employer under a construction contract to issue certificates or make decisions as part of the administration of the contract, he is required to act in accordance with the contract, fairly and impartially, and holding the balance between the employer and the contractor.

Whether or not a certificate is binding and conclusive will depend upon the interpretation of the contract as a whole. If the contract, properly interpreted, provides that a certificate is to be binding and conclusive, the grounds for attacking such a certificate are much narrower. Inclusion of an express power for arbitrators to open up, review and revise certificates is necessary if arbitrators are to have that power. By contrast, no express wording is required in order for the courts to have the power to open up, etc. Nevertheless, the absence of the open up review, and revise wording does not necessarily mean that the certificate cannot be challenged in arbitration. Unless the contract provides that a certificate is to be binding and conclusive, it can be attacked on various grounds, including where the certifier acted outside his jurisdiction, dishonestly or partially in issuing the certificate or where the certificate is otherwise defective as a matter of form, substance or intent.

Where the certificate can be opened up, reviewed and revised or otherwise challenged, the contractor will be very unlikely to have a cause of action directly against the certifier. Absent the ability to challenge certificates, it is possible that the contractor may be able to proceed directly against the certifier but the contractor would have to show that the certifier owed it a duty of care in issuing the certificate and that the certifier was in breach of that duty. This will depend upon the facts.

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

United Kingdom

This depends upon the interpretation of the extension of time clause (assuming there is one), although it has been suggested that there is a general rule (ie, absent clear words to the contrary) that the contractor would be entitled to an extension of time (but not to its losses caused by the delay) (De Beers v Atos (2010) at [177]). This general rule appears to be supported by the most recent case on the topic, Thomas Barnes & Sons Plc v Blackburn with Darwen Borough Council [2022] EWHC 2598 (TCC). However, there are other authorities that suggest the contractor would only get an extension if the employer risk event (the variation) occurred before the contractor risk event (the defective work) (Royal Brompton v Hammond (No. 7) (2000), at [31]) or if it was the dominant cause, was of at least equal causative potency as the contractor risk event or (where the contract refers to fair and reasonableness) it was fair and reasonable. English law has rejected a two-pronged test (followed in Scotland) based on whether the employer risk event is the dominant cause (which gives a full extension) and, if it is not, apportioning between the competing risk events (based on relative causative potency and the parties’ blameworthiness) to assess an extension (Walter Lilly v Mackay (2012), at [370]).

If there is no extension of time clause, the contractor must show that it was prevented from completing on time by the variation. If it can show this, its obligation to complete by the stipulated date will be replaced by an obligation to complete in a reasonable time. The court or tribunal must determine on the facts what the effective cause of the prevention was – the variation or the defective work.

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

United Kingdom

The contractor is entitled to recover disruption costs caused by employer breaches of contract or, where the contract provides for such recovery, other matters that may not constitute employer breaches. Disruption is difficult to prove but most claims take the form of a comparison between the disrupted work and the same type of work on the same or similar project, undisrupted. Issues as to the adequacy of the contractor’s tender rates will usually arise. If the court or tribunal is satisfied that losses have been incurred due to disruption, it will do its best to quantify the amount of those losses.

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

United Kingdom

There is no objection in principle to a claim for constructive acceleration. Such claims are more easily made where there is no third-party certifier to administer extension of time claims. In such circumstances, the failure to allow a valid extension of time claim will usually be a breach of contract by the employer entitling the contractor to claim damages, which may include the reasonable costs of accelerating depending on the circumstances. Claims involving a third party certifier are, however, more rarely successful. The fact that the contractor was entitled to extensions of time that were not granted to him does not on its own mean that the contractor can make a claim for constructive acceleration. Unreasonableness or bad faith by the employer may support a claim for constructive acceleration. However, the availability of interim dispute resolution processes (like adjudication) by which the failure to allow a valid extension of time may be reviewed, reduces the need and scope for constructive acceleration claims.

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

United Kingdom

There are no default rules of force majeure if the contract is silent. What force majeure is and its effect will therefore depend entirely upon what the contract says. Absent a force majeure provision, the contractor will not be entitled to relief (but see question 10).

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

United Kingdom

Where a supervening event or change in circumstances occurs that renders performance of the contract radically different from what the parties contemplated when they made their contract and for which the contract does not expressly or impliedly allocate the risk, the contract is automatically "frustrated" and the parties are discharged from further performance of it. Payments are governed by the provisions of the Law Reform (Frustrated Contracts) Act 1943. In general, these provide for payments made for which no benefit has been received to be repaid and for benefits received for which no payment has been made to be paid for. Frustration is extremely rare. The fact that the contract has become more expensive to perform than had been anticipated does not on its own amount to frustration.

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

United Kingdom

Absent express contractual provision, the contractor is not entitled to relief in these circumstances. A contractor who agrees to carry out and complete work described in the contract usually impliedly warrants that it can do so. Depending upon the wording of the contract, however, the contractor may be able to argue that the employer is under an obligation to issue a variation in order to remove the impossibility.

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

United Kingdom

Provided that they are clearly worded, these types of provision should be effective.

13. When must the contractor warn the employer of an error in a design provided by the employer?

United Kingdom

This may arise as part of a contractor’s implied duty of skill and care (see the answer to question 4 at I(a)(ii)) and will, therefore, depend upon what the contractor is required to do under the contract. For example, if the contractor’s contract includes developing a design provided by the employer, the contractor may be under a duty to check the employer’s design and to advise the employer of errors in it. But if the contractor is merely required to construct work in accordance with designs provided by the employer, it is unlikely that the contractor will be under such a duty. In general, it is more likely that a duty to warn will arise where the design is such that what is required to be built may be a danger to persons or property.

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

United Kingdom

There is no general duty of good faith nor is one normally implied in construction contracts.

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

United Kingdom

Normally such provisions are operated in accordance with their terms. However, they do constitute exclusion or limitation clauses and may therefore be subject to the Unfair Contract Terms Act 1977 – see question 31.

As exclusion clauses, time bar provisions may be construed against the party seeking to rely upon them (the authorities conflict on this, albeit trending towards literal interpretation) but subject to that: (i) they can bar claims based upon causes of action outside the contract, and (ii) there is no difference in approach depending upon whether the claims are based upon matters that the employer caused as opposed to matters that he did not or upon whether the claim is for an extension of time or for payment of money. However, a strict approach to the interpretation of the clause could produce different results for these different circumstances (eg, the adequacy of a notice where the employer was the cause as opposed to where a third party was the cause).

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

United Kingdom

The employer normally has the right to withhold payment where work has not been properly carried out by the contractor or where the contractor’s breach of contract has caused the employer to incur loss. This is subject to the employer having served the notices required by the Construction Act prior to withholding payment (see the answer to question 4, at II(a)(i)).

The contractor has the right under the Construction Act to suspend the works for non-payment (see the answer to question 4, at II(a)(iii)). Absent express provision in the contract, the contractor has no other right to suspend the works due to employer non-performance.

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

United Kingdom

The employer cannot, without clear words allowing it, exercise a power to omit work in order to employ another contractor to do that work. If the employer does so, this will be a breach of contract entitling the contractor to damages (normally loss of profit on the work omitted).

The same principle may apply to clauses permitting the employer to terminate at will. In the event that the employer exercised its rights under such a clause in order to give the work to another contractor then, unless the clause was clearly worded so as to enable the employer to do this, the contractor would be entitled to claim that the employer had repudiated the contract (see question 18) and to recover damages from the employer. Such damages would probably include loss of profit that the contractor would have made had it been permitted to complete the contract.

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

United Kingdom

One party (A) may terminate the contract if the other party (B) so acts or expresses itself as to show that it does not mean to accept the obligations of the contract any further ("repudiated the contract"). This could occur prior to the time for performance, or at the time of performance, of the obligations concerned. In the latter case, B may be taken to have repudiated the contract if it commits a breach or series of breaches of the contract that have the effect of depriving A of substantially the whole of the benefit of the contract or if B commits a breach or series of breaches that "go to the root of the contract". A may also terminate the contract if B breaches a term of the contract, which is classed as a "condition" (ie, a term that is so important to the contract that any breach of it no matter how minor will entitle the innocent party to terminate). Relatively few terms in construction contracts are conditions in this sense. The fact that a term is called a condition in the contract will not necessarily make it a condition. The substance of the term and the contract as a whole are considered in order to decide whether a term is a condition.

If the contract is validly terminated, both parties are discharged from further performance of the contract and the "innocent" party is entitled to be compensated for the loss of the contract, for example, loss of profit or the additional costs of having the contract performed by others.

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

United Kingdom

The parties can normally also rely upon their common law rights of termination as outlined in the answer to question 18 with the practical and financial consequences there outlined.

20. What limits apply to exercising termination rights?

United Kingdom

Provided that the party concerned has complied with the provisions of the contract regarding termination, or in the case of termination at common law, validly exercised its common law rights, there are no limits upon the exercise of termination rights.

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

United Kingdom

While contracts usually make provision in this regard, on the ongoing assumption that the contract is silent, the employer might be taken to have "waived" its right to contend that the works are not complete (or to be "estopped" from denying completion) for the purposes of certain consequences (eg, taking over the works, preventing delay damages from continuing to accrue, transfer of responsibility for insuring the works from the contractor to the employer, release of retention money). It may not, however, prevent the employer from claiming for incomplete or non-compliant work. Broadly speaking, "waiver" would arise here where the employer, in the knowledge that the work is not substantially complete and that it has the right to refuse to take them over, does some unequivocal act that demonstrates that it does not intend to exercise that right. Generally, estoppel would arise here where the employer clearly demonstrates that it will not contend that the work is not substantially complete and the contractor in reliance upon that demonstration alters its position to its detriment.

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

United Kingdom

This depends upon whether the facts show that the employer has waived its right to allege that work does not comply with the contract or is estopped from so alleging. See question 21. Here, waiver would arise where the employer, in the knowledge that the work is non-compliant and that it has the right to complain, does some unequivocal act that demonstrates that it does not intend to exercise that right. Estoppel would arise where the employer clearly demonstrates that it will not complain about non-compliant work and the contractor in reliance upon that demonstration alters its position to its detriment. Waiver and estoppel are often alleged as arguments of last resort and rarely succeed.

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

United Kingdom

Liquidated damages are generally regarded as the only remedy for the breach of contract to which the liquidated damages relate. In the absence of interim contractual milestone dates, liquidated damages for delay to completion will normally be the only damages recoverable for slow progress and then only if a delay to completion results. The employer may, however, have a right to terminate the contract. This depends upon the terms of the contract and the facts. Critical delay caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence will not normally affect the position in regard to liquidated damages but may provide grounds for termination of the contract.

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

United Kingdom

In general, no (from when the employer causes critical delay the completion date is said to become "at large", such that the contractor must only complete within a reasonable time. When this happens the liquidated damages provision can no longer operate and the employer must prove its resultant losses insofar as the contractor failed to complete within a reasonable time).

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

United Kingdom

In the scenario envisaged in question 24 or if liquidated damages constitute a penalty (ie, it imposes a detriment on the contractor out of all proportion to any legitimate interest of the employer regarding the contractor’s proper performance; see Cavendish Square Holding BV v Talal El Makdessi (2015)), or where the provisions of the contract as to completion and liquidated damages are unworkable, liquidated damages will not be recoverable. However, the employer will still be left with its remedy at common law for damages for late completion/defects. These damages may, as a matter of fact, be less than the liquidated damages that would have been recoverable had the liquidated damages provision been enforceable (and where the liquidated damages have been held to be a penalty it will follow that the court or arbitral tribunal will award less).

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

United Kingdom

This is very unlikely to occur where a liquidated damages clause is enforceable. Where the clause is unenforceable, an award of general damages may exceed the amount set by the unenforceable liquidated damages clause (Buckingham Group Contracting Ltd v Peel L&P Investments and Property Ltd [2022] EWHC 1842). The question depends on whether the clause, despite being unenforceable in respect of liquidated damages, is broad enough to encompass any alternative liability that could arise in respect of general damages. Such a finding was made in Eco World - Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd [2021] EWHC 2207.

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

United Kingdom

Damages for breach of contract are usually assessed as the sum that will put the innocent party in the position it would have been in had the contract been performed. This, however, is subject to the rules regarding remoteness of damages. These provide that the damages recoverable are limited to: (i) loss that arises naturally (ie, in accordance with the usual course of things) from the breach, and (ii) such other loss as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of a breach of it. Loss of profit normally falls within (i) and thus, in the example given, would normally be recoverable by the employer. The rules as to remoteness concern the categories of loss recoverable rather than their amount. Accordingly, the fact that the lost profits are exceptionally high will not necessarily mean that they will not be recoverable.

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

United Kingdom

In the scenario outlined, the contractor will not normally be liable for the cost of rectification – it must be reasonable for the employer to rectify and the cost of rectification must be reasonable. The parties are free to agree a stricter defects rectification regime.

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

United Kingdom

Subject to the law on limitation of actions (see question 38), a defects rectification clause in the contract does not normally affect the employer’s right to claim for defects appearing only after the expiry of the DNP.

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

United Kingdom

This normally will exclude losses falling within (ii) in the answer to question 27. However, in some cases “indirect or consequential loss” may be interpreted literally as including losses falling within (i) in the answer to question 27; see Star Polaris LLC v HHIC-Phil Inc (2016) and Transocean Drilling UK Ltd v Providence Resources plc (2016), at #15. 

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

United Kingdom

Such provisions can be effective but may be subject to the Unfair Contract Terms Act 1977 (UCTA). Broadly, this provides that (i) a term of a contract that excludes or restricts liability for negligence must be reasonable in all the circumstances; and (ii) where one party (A) deals upon the other party’s (B’s) standard terms of business, a clause that excludes or restricts B’s liability for breach of contract must also be reasonable in all the circumstances. If these clauses are not reasonable, they will not be enforceable. A standard form of contract published by an industry body (eg, FIDIC) does not constitute "standard terms of business" unless a party habitually uses a particular standard form for all its construction business. UCTA has effect notwithstanding the parties’ choice as the governing law of the contract of a law from outside the UK, if the purpose of that choice appears wholly or mainly to evade the operation of UCTA.

Provided that exclusion clauses are appropriately drafted, and subject to UCTA, they may apply to claims outside the contract, for example, in tort.

Even where an exclusion clause is silent as to such behaviour it will not normally apply to fraud. But if the clause is sufficiently widely worded, it can apply to wilful misconduct, recklessness or gross negligence even where these matters are not specifically mentioned in the clause.

If the clauses specifically state that they apply notwithstanding such behaviour if such behaviour also constitutes a criminal offence, the clause may be void; otherwise such clauses should be enforceable subject to (i) the proper interpretation of the clauses and (ii) UCTA.

In each case, it would be necessary to show a causal link between the behaviour concerned and the loss that the clause excludes.

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

United Kingdom

The contractor does not have a lien over work carried out (unless the contract provides for it).

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

United Kingdom

See the answer to question 4 at II(a)(ii).

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

United Kingdom

Re the first question: absent a binding contract between employer and subcontractor, no. The second and third questions do not then arise.

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

United Kingdom

The employer may hold the contractor to the arbitration agreement (if the employer has not taken a step in the litigation). The position would be the same where litigation is brought in England but the seat of the arbitration is outside England.

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

United Kingdom

A third party can enforce a term of a contract if the contract expressly provides that it may or if, on a proper interpretation of the contract, the term confers a benefit on the third party. Thus, provided that the contract is appropriately worded, those connected with the employer may bring claims against the contractor in respect of both delays and defects. Any such claims will be subject to other terms of the contract (eg, exclusions and limitations of liability), relevant to the term that is sought to be enforced. Alternatively, the third party may enter into a separate agreement (often called a collateral warranty) with the contractor under which the contractor undertakes to the third party that he or she will perform the construction contract in accordance with its terms. The rights of the third party in such a case will depend upon the terms of the collateral warranty but they will sometimes grant rights in respect of delays and more frequently will grant rights in respect of defects. Collateral warranties often contain a provision entitling the contractor to rely upon any defence that he or she could have raised against the employer under the construction contract.

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

United Kingdom

A person who is not a party to a contract cannot have liabilities under it. Accordingly, the affiliates, directors and employees of the contractor will not normally face claims for delays, defects or payment. However, where the contractor is insolvent, its directors may face claims by the liquidator of the contractor if they have been in breach of their fiduciary duty to the company or have violated the provisions of English insolvency law regarding preferential payments, trading while insolvent and the like.

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

United Kingdom

A claim for breach of contract must be brought within six years of the date of the breach in the case of a simple contract or 12 years in the case of a contract executed as a deed. Time stops running when legal proceedings are issued or arbitration proceedings commenced (when this is will depend upon what the parties have agreed regarding who the arbitrators are or who is to appoint them). These rules are procedural rules. The parties are free to agree a longer or, subject to UCTA, shorter period for bringing claims.

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

United Kingdom

Terms implied by the Construction Act in relation to payment and adjudication cannot be excluded by agreement (see question 4, at II(a)).

A longer payment period than that required by the Interest Act is only permissible if it is not grossly unfair.

The term implied by the Interest Act as to interest can only be excluded if a substantial remedy for late payment is provided (see question 4, at II(b)(iii)).

Certain exclusion or limitation clauses must satisfy the reasonableness test under UCTA (see question 31).

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

United Kingdom

The terms implied by the Construction Act will apply anyway even if a foreign law governs – see the answer to question 4, at II(a).

The term regarding interest implied by Interest Act and the restrictions on exclusion clauses imposed by UCTA will not necessarily be excluded by choosing a foreign governing law – see questions 4 and 31.

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

United Kingdom

Re the first question: yes. Re the second question: potentially.

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

United Kingdom

Yes. The Technology and Construction Court judges specialise in both. Such judges may also sit as arbitrators by agreement with the judge concerned and with the approval of the Lord Chief Justice.

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

United Kingdom

Both the High Court and the county courts deal with construction cases. Claims for more than £250,000 are brought in the High Court in London while, subject to certain exceptions (which include international cases), claims for lower sums are brought in the county courts or in High Court centres outside London, which have designated technology and construction court judges. Save to the extent that the court concerned (exceptionally) decides otherwise, the judgments and orders of all these courts are publicly available.

Matters arising in connection with construction arbitrations are dealt with by the Technology and Construction Court, although applications to enforce an arbitration award can also be made in the county courts. These applications are generally heard in private. However, judgments are published except to the extent that the court orders otherwise.

There is a doctrine of binding precedent.

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

United Kingdom

Yes to both questions.

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

United Kingdom

Where there is a binding arbitration agreement, any parallel court proceedings by the employer would in general be confined to matters where the court has the power to make orders in support of the arbitration proceedings, for example, for the preservation of evidence or the taking of the evidence of witnesses.

If the contractor commences an arbitration without having first taken any steps required by the contract, which are conditions precedent to the commencement of the arbitration, the tribunal may lack jurisdiction or may stay the arbitration until those steps are carried out. The employer may apply to the court, for example, for a declaration that the tribunal lacks jurisdiction. The trend of recent cases is, however, firmly against treating such non-compliances as matters of jurisdiction, rather than questions of admissibility for the tribunal to rule on and grant a stay if necessary (Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286).

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

United Kingdom

This will depend upon whether on the facts the contractor has, by applying to the foreign court, waived its right to arbitrate in England or could be said to be estopped from exercising that right. As to waiver and estoppel, see question 21. If the applications to the foreign court were only for interim or provisional relief it is unlikely that this would prevent the contractor from commencing arbitration proceedings in England.

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

United Kingdom

Either tribunal- or party-appointed experts can be used. Party-appointed experts owe their duties to the parties who appointed them but are subject to an overriding duty to a court (and often also to other tribunals) to provide an independent opinion.

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

United Kingdom

Where the employer is a public authority in the UK, it will be subject to the UK public procurement regulations, which aim to ensure that contracts are awarded fairly, transparently and without discrimination. Failure to comply with the regulations may result in compensation, the awarded contract being cancelled and/or the contract award procedure recommenced. These regulations will apply regardless of the governing law of the contract.

In general, proceedings can be commenced in the UK courts against a sovereign state if the proceedings relate to a commercial transaction entered into by the state, to a contractual obligation to be performed by the state wholly or partly within the UK, or where the state has agreed to submit the dispute to arbitration. However, enforcement of any judgment or award against the property of the state cannot be made unless either the state has given its consent or the enforcement is limited to property that is used or intended to be used for commercial purposes.

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

United Kingdom

A party can make an offer that is stated to be “without prejudice save as to costs”. Such an offer should not be disclosed to the arbitral tribunal until it comes to consider the question of costs (save, it seems, when a security for costs application is made).

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

United Kingdom

The answer to the first question is "yes".

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

United Kingdom

The answer to the first question is "yes" if (i) the advice is legal in nature; (ii) the advice is given to those within counsel’s employers who are charged with obtaining or receiving legal advice; and (iii) counsel is a recognised legal practitioner (eg, solicitor).

English private international law generally characterises evidential issues as matters for the lex fori. Thus, for proceedings in England, the issue of whether, for example, a document is privileged is – so far as English private international law is concerned – determined by English law.

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

United Kingdom

The requirements for a contract of guarantee are the same as those for contracts in general (see A2) but in addition the guarantee must be in writing and signed by or on behalf of the guarantor.

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

United Kingdom

Under a guarantee properly so called (where the guarantor undertakes to "see to it that" the party to the underlying contract performs) the guarantor’s liability will be limited to that of the party to the underlying contract (except for the costs of enforcing the guarantee). However, the wording of the guarantee (eg, if it contains an indemnity, may result in the guarantor’s liability being greater).

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

United Kingdom

A guarantor may be released from liability under the guarantee if, after the guarantee has been given, (i) the obligations under the underlying contract are altered, or (ii) the beneficiary has waived its rights under the underlying contract or has allowed more time for the principal debtor to perform. Where the guarantee contains wording to the effect that the guarantee will remain in force notwithstanding such matters, the guarantee may, depending upon the facts and upon the proper interpretation of the wording, remain in force.

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

United Kingdom

Subject to any agreement over jurisdiction, English courts will generally have jurisdiction to determine issues arising under English law contracts regardless of the nationality or locality of the parties. As a matter of practicality, however, the ability of an English court to enforce its own orders depends upon a defendant being present or having assets within the jurisdiction or within the jurisdiction of another state with which England has arrangements for the reciprocal enforcement of judgments.

Generally speaking, the English courts will only intervene to restrain a call on a bond where there is a strong case that the call has been made fraudulently or that the terms of the underlying contract prevent it.

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

United Kingdom

In order to restrain a call on the bond in these circumstances a strong case will have to be shown that the conditions for making a claim under the bond have not been satisfied. This will depend upon the interpretation of those conditions, the wording of the bond and upon the facts. However, if the employer has an entitlement in principle, in the absence of fraud, it would be difficult to persuade the court to restrain a call on the bond on the basis that the amount of the call is disputed.

57. Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

United Kingdom

No.