Corporate Raider Associates LLP (‘Corporate Raider’) has within the last two years, in a corporate takeover, acquired the shares of a construction company, Sitting-Duck Construction Targets Limited (‘Sitting-Duck’). During the course of Corporate Raider’s due diligence exercise, carried out in the context of the acquisition, Corporate Raider’s advisers flagged up deficiencies in the wording of various items of construction documentation. Corporate Raider ultimately took a commercial view on the documentary shortcomings. In the overall scheme of things, Corporate Raider was not especially concerned about the construction documentation and was happy to proceed with the acquisition regardless.
That decision comes back to haunt Corporate Raider, however, because it emerges that design defects in a city centre residential development with which Sitting-Duck was involved as main contractor prior to the takeover – i.e. defects which were, it would appear, ‘latent and inherent’ at the time of the takeover – have emerged as possibly significant structural defects which could prove costly to put right, though at this stage no one has sustained actual loss as such.
A number of stakeholders with historical or continuing interests in the completed development – including the original developer who was the Employer under the construction contract – are beginning to pick through the development documentation with a view to identifying where the liability for carrying out remedial structural modifications to the development might lie. It emerges that Sitting-Duck had taken on overall responsibility for design to the original developer and others such as funders and occupational tenants in terms of the design and build contract and a number of collateral warranties and similar contractual arrangements. However, it also emerges that before Sitting-Duck first became involved in the project some preliminary design work was carried out by a firm of consulting engineers – ScotFree Consulting Partnership (‘ScotFree’) – and it is now generally accepted that the structural defects which have come to light are the result of design flaws for which ScotFree was primarily responsible.
Under the share purchase agreement, the vendor of Sitting-Duck’s shares has no liability to Corporate Raider because Corporate Raider accepted the construction documentation ‘warts and all’. So Corporate Raider and Sitting-Duck – having regard to their respective interests in the developing discussions about liability – begin to focus their attention upon the terms of a novation agreement that was entered into among the project developer, ScotFree and Sitting-Duck. The intention of the novation agreement was to ensure that ScotFree continued to have responsibility to Sitting-Duck in respect of ScotFree’s previous design input as if ScotFree had originally contracted under the appointment agreement directly with Sitting-Duck and not the project developer. Sitting-Duck now wishes to investigate whether ScotFree can be made to shoulder all, or at least some, of the responsibility for the potentially costly design flaws. Attention naturally focuses on detailed provisions of the novation agreement.
One important provision is in the following terms – this has been heavily annotated to assist comprehension:
“The liability [i.e. in respect of the application of professional skill, care and diligence in executing design of the project under the Appointment] of the Consultant [ScotFree] under the Appointment [i.e. between ScotFree and the original developer, being the Employer under the construction contract] whether accruing before or after the date of this Novation Agreement shall be to the Contractor [Sitting-Duck]; and the Consultant [ScotFree] agrees to perform the Appointment and to be bound by the terms of the Appointment in all respects as if the Contractor [Sitting-Duck] had always been named as a party to the Appointment in place of the Employer [i.e. the original developer].”
[Without annotations the clause reads as follows: “The liability of the Consultant under the Appointment whether accruing before or after the date of this Novation Agreement shall be to the Contractor; and the Consultant agrees to perform the Appointment and to be bound by the terms of the Appointment in all respects as if the Contractor had always been named as a party to the Appointment in place of the Employer.”]
In correspondence between the lawyers acting respectively for ScotFree and Sitting-Duck, ScotFree denies that it now has any liability or responsibility for the relevant design flaws, or for putting right structural defects, in the residential development. ScotFree’s managing partner comments:
‘We can walk away from this Scot free’.
Having regard to relevant leading case law evaluate, with a view to advising Sitting-Duck, the legal and contractual issues arising in this problem scenario, including the possible legal effect of (among other things) the clause extracted from the novation agreement (as above); and give a reasoned opinion as to whether Sitting-Duck can legally hold ScotFree to be responsible for the design flaws, and for rectifying the resulting structural defects, in the residential development.
(In the course of your answer it may be necessary to speculate or hypothesise about the existence, and effect, of other contractual arrangements not specifically mentioned, or not mentioned in any detail, in the problem scenario.)
[WEIGHTING: 40% OF SECTION A LEGAL PROBLEM AND 20% OVERALL]
In order to strengthen and protect the legal and contractual position of the contractor in a situation such as outlined in this problem scenario suggest – with an appropriate explanatory commentary in each case – ways in which the wording of a novation agreement could be drafted and/or amended and whether additional protections could be incorporated into other contractual arrangements (such as in the construction contract between the contractor and the developer/employer).
(For this purpose, you have the option of literally attempting the drafting of the necessary legal provisions. But in any event you should include an appropriate explanatory commentary for the modifications proposed.)
Word limit for Section A Legal Problem: 2,000 words (plus or minus 10%)
Write an essay critically evaluating the adjudication and statutory payment provisions of the Housing Grants, Construction and Regeneration Act 1996 (and related secondary legislation) all as amended, which had their origins in Sir Michael Latham’s report, Constructing the Team, published in 1994. The essay should include a discussion of the nature of adjudication as a unique dispute resolution process with characteristics of both arbitration and expert determination.
Also consider in the process how successful the adjudication and statutory payment provisions of the 1996 Act (and related secondary legislation) have been in tackling the reportedly acute financial and cash-flow difficulties of the late 1980s and early 1990s which set the scene for the Latham Report.