Overview
2019 has been another interesting year for the Built Environment sector. In this, our final briefing of the year, we have curated a selection of key cases relating to construction, planning and real estate, covering topics such as payment provisions in construction contracts, time limits for challenging planning permissions and just how frustrating Brexit can be.
Construction
Adjudication and insolvency
The year started with the now well-known conjoined appeals of Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale Ltd and Cannon Corporate Ltd v Primus Build Ltd being heard. The Court of Appeal considered a raft of points concerned with adjudication claims by insolvent contractors and those who are the subject of a CVA. It was held that while the contractual right to refer a dispute to adjudication survives liquidation, in practical terms having that right may be of little value. A company in insolvent liquidation, even if it has an adjudicator's decision in its favour, but who faced any sort of cross-claim, would not be capable of having that decision enforced. That makes the adjudication an exercise in futility and an injunction preventing its continuance will usually be appropriate.
Material breach and practical completion
As the year progressed, Court of Appeal handed down a useful decision, Mears v Costplan, that reviewed the law on what is meant by practical completion of a new-build (PC). It is a reminder that the bar to get over before PC can be achieved is relatively high. The fact that the works are largely finished is not enough to achieve PC. If there are patent defects and they are more than "trifling" then PC has not occurred. Another element of the case concerned a dispute over room size: under an Agreement for Lease (AfL) in relation to student accommodation, the parties agreed that, if the as-built rooms were more than 3% smaller than specified, this would be a "material" departure. As a large number of the constructed rooms were more than 3% smaller than specified, the proposed tenant argued that determination of the AfL and/or refusal of certification of PC was justified. The Court of Appeal disagreed and stated that the AfL would have needed to state that these were the consequences of the material departure. In other words, this is another case demonstrating that if parties want certainty as to the consequences of certain breaches they should spell them out in the contract terms.
Payment provisions
The summer saw the Court of Appeal review Part II of the 1996 Construction Act. While there have been a lot of disputes about the payment provisions in Part II, they have almost always been battles about payment notices, payless notices, and whether the payment notice was served at the right time, in the right place, and in accordance with the procedural requirements of the contract. But Part II also contains complex provisions as to what a contract must contain in terms of payment terms and, if they are missing, what terms are incorporated by way of the Scheme. Conceptually this is unusual, particularly in light of the courts move away from prescription of terms toward the principle of party autonomy. In this case, Bennett (Construction) Ltd v CIMC MBS Ltd (formerly Verbus Systems Ltd), the Court of Appeal found that the parties' agreement did meet the requirements of Part II, but the judges emphasised that, if it had not, they would have sought to marry these conflicting principles by holding hard to the underlying bargain between the parties, while incorporating the relevant part of the Scheme: Part II was not designed to delete a workable payment regime which the parties had agreed upon.
Cladding and fire related issues
As the year drew to a close, the Administrative Court quashed part of the Building (Amendment) Regulation 2018 dealing with the ban of combustible cladding. Regulation 2(6)(b)(ii) banned devices "for reducing heat gain within a building by deflecting sunlight which is attached to an external wall" unless they have been certified as complying with certain standards. In R (on the application of British Blind and Shutter Association) v Secretary of State for Housing, Communities and Local Government, the British Blind and Shutter Association challenged this as being unfair as it effectively banned the use of external shutters, awnings and blinds on high-rise buildings, and the government had not consulted with them before implementing it. The judge found for the Association, and stated that it was in the public interest for the Government to receive advice from representative bodies and hear their representations before making substantive changes to the regulations. The practical effect of the judgment is that the regulations now exist as if Regulation 2(6)(b)(ii) had never been included in the ban. In response, the Government has stated that "it remains Government policy that combustible materials should not be used in or on external walls or in any attachments to those walls".
Planning
Time limits for challenges
This year, we saw how the approach to time limits for judicial review claims varies, depending upon the type of challenge being mounted. In R (on the application of Oyston Estates Ltd) v Fylde Borough Council and St Anne's on the Sea Town Council, the Court of Appeal considered a challenge to a neighbourhood plan. It held that the time limits were carefully and precisely prescribed by statute and as such, it had no discretion to amend them.
In contrast, in R (on the application of Thornton Hall Hotel Ltd) and another v Thornton Holdings Ltd, the Court of Appeal held that a challenge to a planning permission, bought some five and a half years after the permission was granted, should be allowed to proceed out of time and that the permission should be quashed. To read our full briefing on this case, click here.
Section 73
In relation to section 73 of the Town and Country Planning Act 1990, we saw two judgments handed down, one which clarified its scope, the other which has the potential to cause uncertainty. In Finney v Welsh Ministers, the Court of Appeal confirmed that section 73 could not be used to modify a description of development. Therefore applications to amend conditions which would result in a conflict with the description of development should be refused on the ground that such amendments would be unlawful. To read more, click here.
In London Borough of Lambeth v Secretary of State for Housing, Communities and Local Government, the Supreme Court held that a planning permission granted pursuant to section 73, which failed to include a condition restricting the types of goods that could be sold from a retail unit, nonetheless did operate to restrict the retail offering. Moreover, conditions from an earlier permission that had not been replicated in the section 73 permission would continue to have effect. For more on this case, click here.
Material considerations
In R (on the application of Wright) v Resilient Energy Severndale Ltd and Forest of Dean District Council, the Supreme Court considered what qualifies as a material consideration for planning purposes, in the context of community benefits offered by way of a planning obligation.
It reiterated that a three-fold test applies, derived from the test to impose planning conditions set out in Newbury District Council v Secretary of State for the Environment [1981]. Planning conditions must (1) be for a planning purpose and not for any ulterior purpose; (2) fairly and reasonably relate to the development and (3) not be so unreasonable that no reasonable planning authority could have imposed them. The Court held that it was logical to equate the ambit of material considerations with the ambit of the power to impose planning conditions on the basis that if a local planning authority had the power to impose a particular planning condition, it followed that it could treat the imposition of that condition as a material factor in favour of granting permission.
In the present case, the community benefits did not satisfy the Newbury criteria – they were not for a proper planning purpose but for an ulterior purpose of providing general benefits to the community. Accordingly, they were not material considerations and the local planning authority acted unlawfully in taking them into account.
Real Estate
Can Brexit be a frustrating event?
The High Court rejected the argument by the European Medicines Agency (EMA) that their lease was frustrated because of Brexit. The decision in Canary Wharf Ltd v EMA was a welcome decision for landlords as it confirmed that Brexit will not allow tenants to exit from their lease obligations. The doctrine of frustration is narrow and the courts are consistent in their message that it is not a mechanism to allow a party to escape a bad deal.
Whilst the facts of this particular case are fairly unique it could have had far reaching consequences if the court had decided in favour of the tenant. Many businesses that depend on access to the single market could have followed EMA and claimed Brexit operated to end their contractual liabilities on the basis of the doctrine of frustration. To read our briefing, click here.
A right to survey can be a Code Right
The case of University of London v Cornerstone Telecommunications Infrastructure Ltd went all the way to the Court of Appeal. The list of code Rights in the electronic Communications Code 2017 does not include a right of entry to survey the proposed site. However the Court of appeal decided that the existing Code Right to carry out works for or in connection with the installation of apparatus would cover the right to assess suitability even if the survey is non-intrusive.
The Court of Appeal stated that when legislation uses an imprecise word it is open to the Court to place a strong reliance on the legislative purposes underpinning the legislation. For more information, please see our briefing, by clicking here.
Can a licensee get relief from forfeiture?
Relief from forfeiture is only applicable where the party applying for relief is a tenant or has some other proprietary or possessory right. The case of Manchester Ship Canal Co Ltd v Vauxhall Motors Ltd went to the Supreme Court for a ruling on whether a licence was a possessory right.
The Supreme Court found that the rights granted in the licence were possessory and so relief from forfeiture could be claimed. However it is worth noting that this particular licence was unusual in that it was exclusive and had been granted in perpetuity so it does not follow from this decision that termination of all licences will give a right to claim relief from forfeiture. Read our briefing by clicking here.
Contractual interpretation revisited
Lord Briggs delivered the majority judgement in the Supreme court decision of Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd.
The lease had a very wide bespoke user clause permitting use for one or more of: retail, offices, residential, storage or studio. However the tenant also covenanted in the lease not to apply for planning permission without landlord's consent, not to be unreasonably withheld.
Lord Briggs delivered the majority judgement and determined that reasonableness should be assessed at the time of the tenant's request for permission to apply for planning permission. Lord Briggs considered that the notion of first identifying the original purpose of the covenant in order to establish what the parties intended was contrary to the approach taken by Lord Denning in Bickel v Duke of Westminster [1977] that the court should not limit the landlord to any particular grounds for refusing consent – "not even under the guise of construing the lease."
Therefore the two clauses in the lease had to be read together meaning that the user clause was effectively contingent on the planning clause. For the tenant this meant that a particular use that was permitted under the user clause was not in fact permitted at all.
