Construction & Engineering

LITIGATION INVOLVING FITOUT WORKS AND RELIANCE ON COLLATERAL WARRANTIES

Current High Court proceedings in Ireland in Rabobank v AM Alpha Lux Invest and others [2023] IEHC 612 illustrate some of the legal issues that arise in the context of fitout works, as well as reliance on collateral warranties provided during the construction phase.

Rabobank is a tenant which, prior to taking occupation of the premises, undertook fitout works. The defendant is the owner of the building, having acquired it from its previous owners when it was at the final stages of construction. The third parties (who were joined by the owner/defendant) are construction and professional services companies who were engaged during construction of the building. When the owner/defendant acquired the building, it received collateral warranties from these third parties.

The tenant alleges problems with the building (air conditioning and circulation, leaks, odours) which it says breach covenants in the lease. The owner alleges that, if there are defects, they were contributed to or caused by the tenant’s negligence in the fit-out works. Similar arguments are made by the third parties, as well as an argument that the owner was contributorily negligent in the manner of allowing the fit-out works.

The application before the Court was for the trial of the issues between the tenant and the owner to be heard in advance of, and distinct from, the trial of the issues between the owner and the third parties. The Court granted this application.

In granting the application, Ms Justice Roberts commented on the issues that will be involved in relation to the third parties. The tenant’s action against the owner is likely to be less complex than the third-party action, which is not a straightforward third-party action where a defendant is simply seeking to pass through any liability he has to another party. Instead, it involves five separate third parties, who will likely seek to pass responsibility one to the other, in addition to defending their positions against the owner. The third-party disputes will concern the scope of each party’s original mandate, the work each undertook, the cause of and responsibility for any defects arising, and the terms of any collateral warranties which might deal with that responsibility, as well as the remedies flowing to the owner in reliance on them.

ADJUDICATION

As in Ireland, the circumstances in the UK in which a court will dismiss an application to enforce an adjudicator’s decision are narrow. They can broadly be described as instances where an adjudicator exceeds jurisdiction or where fair procedures or natural justice is breached. To date, the courts in Ireland have not dismissed an application for enforcement on these grounds, but there are some instances of this happening in the UK.

One such example is AZ v BY [2023] EWHC 2388, where the Court declared an adjudicator’s decision unenforceable on the basis that there had been a breach of the rules of natural justice. In this case, the adjudicator saw without prejudice communications between the parties during the adjudication process. The Court considered that a fair-minded and informed observer, considering all of the circumstances of this case, would conclude that there was a real possibility that, having seen the without prejudice material, the adjudicator was unconsciously biased.

SUSTAINABILITY

The Council and Parliament have reached agreement on the proposal for a Recast Energy Performance of Buildings Directive. The Recast Directive will require that all new buildings are zero-emission as of 2030, and new buildings occupied or owned by public authorities are zero-emission as of 2028. Further information is available from the Council, Parliament and Commission. The next step is formal endorsement by both institutions.

STANDARD FORM CONTRACTS

JCT

In the UK, JCT launched new Construction Administration Model Forms for use with the 2016 edition of its Standard Building Contract, Design and Build Contract, and Intermediate Building Contract.

NEC

NEC has provided an article commenting on how Option X22 on early contractor involvement has been improved, following the amendments that were made in January 2023.