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In Association With...
OCTOBER 2013
In Association With... the technology and construction Solicitors' association
Lindy Patterson QC heads up Dundas & Wilson’s construction and energy disputes team. Dundas & Wilson handles a wide range of construction disputes from buildings to wind farms to power plants. With a team of 20 lawyers dedicated to this area, they are well-placed to handle these resource intensive disputes working closely with lawyers from their real estate and energy teams. Lindy speaks here about two particular trends in claims involving parties’ advisers, and their insurers, in this sector.
the continuing rise of claims against
construction advisers A significant trend within the construction litigation market is the continuing rise of claims against construction advisers, often described generically as the design team. Any one construction project, regardless of the type of structure or building being constructed, designers.
involves a number of specialist
Typically for any medium to large project you will have a structural engineer; civil engineer; mechanical engineer; and architect (often more than one) all with different types of expertise. On the construction side you have what are known as specialist sub-contractors. These are companies that do actually undertake construction work but also bring their specialist expertise to the design process. Such specialist sub-contractors will be responsible for the various systems being installed in a building such as the electrical systems and IT. They are also likely to be responsible for particular aspects of a structure such as steelwork connections and various roof systems where the design and construction are so closely intertwined only those who install it really know how to design it.
What do all of these parties have in common? They all contribute to the design of a building or structure. As the complexity of what is being built, from offices to power plants, increases it is obvious they play a significant role. When it comes to latent defects these are more likely to have been caused principally by design failings rather than poor workmanship (the latter may well emerge and be spotted much earlier in the project).
As the number of designers, and the complexity of what they are designing, has increased, so have the number and size of claims against them for latent defects, often many years after completion. A major contributing factor to the increase in claims is the fact that these designers carry professional
indemnity insurance (PI) and are contractually obliged as part of their contracts to carry it, often for 12 years post-completion. Any case in the Technology and Construction Court (TCC) that involves designers will undoubtedly have sitting behind them, and indeed running the defence, an insurance or syndicate of insurance companies. Who carries insurance, especially in this climate, will be a key factor in deciding which party to sue or, as a defendant, in determining which parties to bring in as third parties.
the increasing market in, and reliance
upon, collateral warranties The tendency to sue the designers is further expanded by the collateral warranty market. For those not involved in property or construction work this is a “side” agreement that designers will give to parties that they are not in contract with e.g. tenants; funders; operators; forward purchasers. That is those parties who have, or acquire, an interest in a building but do not otherwise have a contractual link to those who designed or built it. These agreements became necessary following cases such as Murphy v Brentwood in the 90's which prevented parties suing in tort for economic losses apart from in the most exceptional circumstances. These agreements are known as collateral warranties.
In every development there is a demand and indeed a market in collateral warranties. They are often capable of assignment two or three times. Purchasers of building and funders require them as a matter of course.
So they extend the number of parties that can sue if something goes wrong with the development, and they have certainly been well used since the property market slump. There have been many major pieces of litigation involving collateral warranties.
Most importantly, collateral warranties will be backed by PI insurance UNLESS the extent of the obligation granted under the warranty is excluded from the policy. A typical insurance policy will provide cover for claims under collateral warranties PROVIDED that the obligations being undertaken by the party granting the collateral warranty are no greater than those granted under the underlying contract and generally are duties to exercise reasonable skill and care. The recent case in the TCC of Oakapple Homes (Glossop) Ltd v DTR 2009 Ltd (in liquidation) [2013] EWHC 2394 (TCC) underlines their importance. In that case Oakapple Homes was seeking an order compelling DTR, an architectural practice in creditors' voluntary liquidation, to execute certain collateral warranties in favour of the residential leaseholders of new apartments, under the hand of its liquidator. But why seek a direction when the architect's practice was in liquidation? To use the benefits of warranties backed by insurance. This is only one example of many cases concerning collateral warranties. LM
contact details:
Lindy Patterson qc Partner and Head of construction & Energy disputes