There is an ongoing debate in the construction industry as to whether changes in work practices that were implemented as a result of government advice can give rise to relief for a "change in law".
Until very recently this was not a question which had been considered by the courts. However, on 17 September 2020, judgment was handed down in a test case instigated by the Financial Conduct Authority against various insurers of business interruption in which the question of the legal effect of the UK Government's guidance was considered: The Financial Conduct Authority v Arch and Others [2020] EWHC 2448 (Comm).
Why is this important?
New working practices have been introduced across the industry in response to the Government's public statements and guidance on social distancing such as the 2 metre rule (or the later addition of 1 metre with extra precautions in place). These social distancing measures remain a pivotal consideration in dictating safe practices on a construction site, and on many projects may lead to an increase in costs and delays.
The wording of the contract always needs to be checked but a common way risk is allocated is for a pandemic like COVID-19 to be an event of force majeure, providing the contractor with a right to an extension of time but no right to claim additional costs.
However, if a contractor is able to rely on a change in law provision, there is sometimes also a right to claim additional costs. Change in law provisions vary, with some being broadly drafted to capture government advice and guidance and others taking a more restrictive approach so as to only apply to primary or secondary legislation. One formulation that is often used is that a change in law applies to those things done which have "the force of law".
What did the FCA case say?
The relevant question in the FCA case was whether references to "restrictions imposed" by a public authority and "action" of the Government covered losses arising as a result of various measures taken in response to the Government's advice and guidance in respect of COVID-19 (rather than in response to legislation and regulations).
Lord Justice Flaux and Mr Justice Butcher held that the insurance policy wordings they considered - "restrictions imposed" and "action [of the Government] where access will be prevented" – meant steps which had the force of law. They also held that the Government's advice was "less than mandatory" and "however strongly worded, did not have the force of law" (see, in particular, paragraphs [266] – [267], [428] and [434] – [435]).
To have the force of law in this context, the Court held that guidance or advice would need statutory authority, such as provisions set out in the Coronavirus Act 2020 or the underlying Regulations (the 21 and 26 March 2020 Regulations).
Is this judgment relevant for the construction industry?
This test case was about how properly to construe the particular wording of a number of business interruption insurance policies, which are very different to the wording of a construction contract. However, it does provide some guidance as to how the courts will approach the question of whether the guidance has the "force of law".
In many respects, the decision is not surprising. Government advice and guidance is often explicitly expressed as not having the force of law, see, for example, the Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency, published on 7 May 2020 (and updated on 30 June 2020) which provides that it is non-statutory and does not operate to override legal duties or obligations.
This approach also accords with the Prime Minister's most recent statement (22 September) which outlines an action plan to turn COVID-secure guidelines in retail, leisure and tourism and other sectors into legal obligations. Although, it is unclear the extent to which this new strategy will apply to the construction sector.
In any event, there are added complexities arising in the construction sector from the interaction between so called "soft law" (i.e., government advice and guidance) and "hard law" (i.e., legislation and regulations). For example, existing health and safety legislation (such as the Health and Safety at Work Act etc. 1974) imposes a duty on employers to ensure the health, safety and welfare of employees so far as is "reasonably practicable". This requires an assessment of the risks to employees at work and the implementation of measures to eliminate or minimise those risks (noting that the Government has acknowledged that, as a public health risk, COVID-19 cannot be eliminated in the workplace).
The Construction (Design and Management) Regulations 2015 also impose duties on parties involved in construction projects to manage health and safety risk. In many cases, compliance with these ongoing duties, in response to a new risk, may require additional measures (such as social distancing) to be implemented on site. The Government has warned that "failure to carry out a risk assessment which takes account of COVID-19, or completing a risk assessment but failing to put in place sufficient measures to manage the risk of COVID-19, could constitute a breach of health and safety law".
This has led to an argument that government advice and guidance may, in practice, have the force of law giving rise to change in law claims under some contracts. The argument to the contrary is that the guidance itself is not law (reinforced by the judgment in the FCA test case) and the relevant health and safety legislation is not new so there has been no change in law. Instead, it could be said that the changed circumstances arising from COVID-19 may require a different approach to working practices (upon which the Government has provided advice and guidance) but that does not arise as a result of a change in law.
These are matters with which the courts have yet to grapple. Accordingly, until cases on change in law provisions in construction contracts come before the courts, the debate as to whether compliance with government advice and guidance has the force of law will continue. In the meantime, the decision in the FCA test case may be appealed by insurers so its impact remains uncertain for the time being.
