What can complex construction litigation cases teach us?

The answer: Quite a lot!

In this blog, we will share a case study to highlight the lessons learned, but before we do, let us explain what construction litigation is, why it’s common, what the process is and key considerations for property owners and developers.

Read on to learn more about construction litigation and the recent case of 381 Southwark Park Road.

Construction litigation is a legal process used to resolve disputes related to construction projects. This legal process is often used when parties cannot reach a resolution through negotiation, mediation, adjudication, or other alternative dispute resolution mechanisms.

Litigation in construction involves lawsuits, which are filed through the formal court system, to enforce contractual rights and obligations for those involved in the project, such as contractors, subcontractors, engineers, architects, construction companies or property owners.

Construction litigation often arises because of the complex and long-term nature of construction contracts and projects. The complexity and length of projects often lead to disputes, which can result in litigation if the parties can’t find an agreeable resolution between them.

Here are some common causes of construction litigation:

• Breach(s) of contract

• Construction defects

• Cost escalation

• Delay and disruption

• Variations/scope change

• Payment issues

• Unbalanced risk allocation.

If other resolution methods for these disputes fail, such as adjudication or mediation, they are often resolved through litigation, ensuring that the parties’ legal rights are determined and upheld.

If you’re experiencing a breach of contract, delays and disruptions or any of the other common causes listed above, and you can’t come to an amicable resolution, you need to seek legal advice as soon as possible.

A legal professional will be able to help you and ensure your construction dispute is resolved. The best course of action might well be construction litigation, in which case, here’s a brief overview of what that process might look like:

Step 1: The Pre-Action Protocol for Construction and Engineering Disputes

Before commencing an action, The Pre-Action Protocol for Construction and Engineering Disputes must be followed, which includes:

• Protocol timeline
• Letter of claim
• Letter of response
• Pre-action meeting

Step 2: Filing a claim

If the matter is not resolved as part of The Pre-Action Protocol for Construction and Engineering Disputes process, the next step is to ensure the claim is filed at the relevant court within the required time limits either under the contract or prevailing legislation.

In a contract where no time or procedure is specified, the limitation period is six years. This time limit extends to 12 years if the contract was signed as a deed. That said, it’s crucial to check the contract for dispute or claim provisions that give procedures for claims or disputes or specify which forum (the court or an arbitrator) the claim should be lodged or the dispute referred.

Step 3: The defence

After the claimant has filed a claim, which outlines the dispute and the desired resolution of the dispute, the defendant must respond. The defendant has two options: they either admit or deny liability. If the claim is monetary, they will also comment on the amount.

Step 4: Presenting evidence

Both parties must present their evidence and arguments for their stance on the dispute. Evidence relied upon during this process is likely to include documentary evidence, factual evidence and possibly expert evidence.

Whilst much of the evidence will be provided on a documents-only basis, construction disputes that do not settle usually provide for a trial where all evidence and witnesses are tested by opposing counsel in front of a judge.

Step 5: The judgment

For claims being dealt with by the court, a judge will make a ruling based on the evidence presented.

The court’s ruling could include awarding monetary damages, issuing an injunction to prevent specific actions or ordering a party to do remedial work.

Step 6: Enforcement

The final decision from both the court and the arbitrator can be enforced if required. However, those done through the court may be appealed to a higher court following an adverse ruling, while an award made by an arbitrator is often final and binding.

Remember that where disputes, particularly construction litigation, are concerned, you must seek professional legal advice as soon as possible.

If you’re a property owner or developer, it’s imperative you understand what measures you can take to avoid construction litigation, how to prepare for a construction litigation case if your dispute can’t be resolved any other way, and what to expect during the litigation process.

As they say, prevention is better than cure; so, first things first, here are some of our quickfire tips on how to prevent construction litigation altogether:

1. Records, records records – we never get bored of preaching this mantra as correctly documenting your construction project is crucial to its success. This means you need a well-drafted construction contract, which includes clear allocation of rights, responsibilities, and expectations of all parties involved in the project.
2. Practice open communication – A big cause for disputes is poor communication, so make it part of your mission during your construction project to reply to stakeholders in a timely manner and have regular meetings where all parties can address any project concerns. Most projects provide for weekly progress meetings, make identifying and manging any potential disputes part of this process.
3. Seek professional legal advice – The sooner you seek professional advice, the better and less likely you will experience litigation. Chartered Quantity Surveyors, like ourselves, can review and draft contracts, help you understand your rights and obligations, and provide early intervention to resolve issues before they become disputes.

When it comes to what to expect during the litigation process, as you can see in the above section, we’ve provided a brief overview. However, if you want to learn more about the litigation process and what to expect during it, you can read our What is Litigation blog.

In 381 Southwark Park Road RTM Company Ltd & Ors v Click St Andrews Ltd & Ors [2024] EWHC 3179 (TCC) where our David Daly was cross examined on his quantum evidence, Mrs Justice Jefford awarded damages to residential leaseholders and a right to manage (RTM) company arising from defective work carried out by the previous owner of an apartment building, with damages awarded in relation to rainwater ingress, structural defects and fire safety issues caused to a block of 17 flats in South East London.

The judge also ordered a Building Liability Order (BLO) against Click Group Holdings Limited, the parent company of Click St Andrews Ltd, as there was a finding of a “relevant liability” under s130 of the Building Safety Act 2022 (BSA).

The 381 Southwark Park Road construction litigation case is significant because the judge found, for the first time in the High Court, that there was a “relevant liability” for a BLO.

This case teaches us several important points:

1. Whilst it is common practice for property developers to set up special purpose vehicles (SPV) as a means of limiting the parent company’s financial exposure, the introduction of BLOs provides a potential avenue to pierce the corporate veil that was previously provided by the SPV.
2. A “relevant liability” can include a liability arising “as a result of a building safety risk”, as was found to be the case in 381 Southwark Park Road.
3. Given the fall out of Grenfell Tower, there will be a lot of nervous parent company directors and shareholders out there looking into what exposure they might have to a BLO.
4. The importance of record keeping – the Court agreed with most of David Daly’s assessment but a large factor in that were the records kept and maintained by the residents.