The recent judgment of the TCC in St James’s Oncology SPC Ltd (Project Co) v Lendlease Construction (Europe) Ltd and another provides a fascinating commentary on the importance of drafting a building contract that is tailored to deliver the needs of the employer and the end-user.
In this case, Project Co was engaged by Leeds Teaching Hospitals NHS Trust (the NHS Trust) under an agreement (the Project Agreement) to design and build the Oncology Centre at St James’s University Hospital in Leeds (the Centre). Project Co appointed Lendlease as the design and build contractor under an amended JCT Design and Build Contract, 2016 Edition (the Building Contract).
The Project Agreement set out the NHS Trust’s “minimum technical and construction design standards”, with which Project Co had to comply (the Standards). The Standards required compliance with the principles outlined in HTM 81 (the guidance on the design of fire precautions in new hospitals and major extensions to existing hospitals) and, in instances of non-compliance, a justified fire-engineering approach to be adopted and the non-compliant design aspects to be of a standard equal to, or better than, HTM 81.
During the trial, Project Co suggested that the Centre was built by Lendlease in breach of fire-safety standards and contractual requirements, and that there were numerous serious fire-safety and engineering defects which could have significantly impacted the Centre’s ability to operate. Lendlease denied liability on the basis that it had complied with the fire strategy which was agreed by all parties – the fire strategy had been amended before practical completion to reflect the as-built works. The TCC held that the fire strategy implemented by Lendlease was non-compliant with the Building Contract and the Project Agreement requirements (including HTM 81).
We should clarify that Lendlease was not a party to the Project Agreement so a critical part of Project Co’s case before the TCC was to demonstrate that it had properly downloaded the relevant obligations and liabilities assumed by Project Co under the Project Agreement into the Building Contract. This blog post discusses how Project Co successfully achieved this downloading exercise.
Each of the provisions discussed below are amendments to the standard form JCT Design and Build Contract 2016.
The project agreements clause
The Building Contract included a project agreements clause pursuant to which Lendlease agreed to assume the obligations, risks, and liabilities of Project Co under the Project Agreement and other “Project Documents” identified in the Building Contract. The clause read as follows:
“The Contractor shall, save as otherwise expressly provided in this Contract, perform and assume as part of its obligations under this Contract Project Co’s obligations, risks and liabilities under the Project Agreement, the Schedules to the Project Agreement and the other Project Documents, insofar as the same relate to design, construction, commissioning, testing and completion of the Building Contractor’s Works (as if the same were expressly referred to herein as obligations, risks and liabilities of the Contractor mutatis mutandis)”. [The Project Agreement is identified in the Building Contract as a Project Document].
The project agreements clause was further supported with the following acknowledgment from Lendlease:
“The Contractor acknowledges that it is (and the Contractor shall be deemed to be) on notice as to the terms of the Project Documents, including the obligations and potential liabilities of Project Co arising under them.”
The TCC confirmed that incorporating these provisions into the Building Contract meant that “the terms of the Project Agreement are therefore directly relevant to Lendlease and set out the obligations that Lendlease has assumed” insofar as they related to the “design, construction, commissioning, testing and completion” of the works that Lendlease was required to carry out under the Building Contract.
Generally, enforcing a breach of contract claim in damages under a project agreements clause requires the employer to demonstrate that the losses it has suffered (in this case, the losses to the NHS Trust) are, as per the well-known test from Hadley v Baxendale, in the reasonable contemplation of the parties at the time of entry into the contract as being a probable result of the relevant breach.
To circumvent any remoteness issue when bringing a damages claim, Project Co imposed in addition the following indemnity on Lendlease under the Building Contract:
“5.2 The Contractor shall ensure that none of the following occur and shall indemnify Project Co against all claims, proceedings, loss, damage, costs and expenses (including legal costs) suffered or incurred in relation to any of the following save to the extent caused or contributed to by any breach by Project Co of this Contract or the negligence of Project Co, its employees, agents or sub-contractors agents or subcontractors (excluding the Contractor, the Estates Maintenance Contractor, the MES Provider and its sub-contractors).
5.2.1 Any breach, non-observance or non-performance by the Contractor of those of its obligations referred to in clause 5.1.
5.2.2 Any act or omission of the Contractor, a subcontractor of the Contractor, or their respective employees, servants or agents which causes, contributes or otherwise gives rise to any breach by Project Co of any of its obligations pursuant to, or liability under, the Project Documents or otherwise gives rise to any other liability on the part of Project Co to the Trust, the Funders or any Project Participant or pursuant to any Law or Consent.
5.2.3 Any negligence or breach of statutory duty on the part of the Contractor, a subcontractor of the Contractor, or their respective employees, servants or agents.”
Although the TCC withheld any declaration on the indemnity claim, due to the substantial damages being awarded, the TCC described the indemnity as a “blank cheque in relation to any future claim which may be issued against it by the Trust”, highlighting the effectiveness of such indemnity support.
Project Co did not just settle for a project agreements clause as a panacea under the Building Contract but also ensured that the Building Contract terms were properly aligned with the relevant terms of the Project Agreement. This exercise was not lost on the TCC.
The TCC commented that, in each instance where required, the Building Contract was “in materially identical terms” to the Project Agreement, meaning that both Project Co and Lendlease were obliged to comply with the NHS Trust’s “Construction Requirements”, Project Co’s “Proposals” and the terms of the Project Agreement. The TCC highlighted the following extracts from the Building Contract:
“Clause 12.1 is in materially the same terms as clause 5.2 of the Project Agreement:
‘12.1 The Contractor shall at its own cost be solely responsible for procuring that its obligations under this Contract are at all times performed…
12.1.6 except to the extent expressly stated to the contrary in the Trust’s Construction Requirements or the Service Level Specifications, in compliance with all applicable NHS Requirements.’
Clause 13.1 is in materially the same terms as clause 17.1 of the Project Agreement:
‘13.1 The Contractor shall carry out the Building Contractor’s Works:
13.1.1 so as to procure satisfaction of the Trust’s Construction Requirements;
13.1.2 in accordance with Project Co’s Proposals;
13.1.3 in accordance with the other Sub-Contractors’ Statements of Requirements; and
13 .1.4 in accordance with the terms of this Contract.'”
In addition, the Building Contract mirrored the Project Agreement by clarifying that the obligations in clauses 13.1.1 to 13.1.4 (set out above) were independent obligations, meaning that compliance with one sub-clause was not a defence to an allegation that another sub-clause had not been complied with. This provision further supported Project Co’s case against Lendlease.
It was Lendlease’s case that, in complying with its fire strategy, it had discharged its contractual obligation to Project Co regarding compliance with the technical specifications set out in the Building Contract. Far from it, said the TCC, because “compliance with the Fire Strategy was in addition to Lendlease’s obligation to comply with the Trust’s Construction Requirements”, a position which was cemented by the inclusion in the Building Contract of the following provision dealing with conflicts between provisions and standards:
“Where one provision of this Contract imposes upon the Contractor a standard, duty or obligation which is more onerous than, or additional to, that imposed by another provision, this shall not be treated as an inconsistency for the purposes of paragraph 1 above. Rather the relevant standards, duties or obligations shall, so far as possible, be treated as cumulative, failing which the more onerous standard, duty or obligation shall prevail.”
Lendlease argued that, where the fire strategy was not compliant with the requisite technical specifications set out in the Project Agreement and the Building Contract, these were derogations that were identified, justified and ultimately approved by all the relevant parties.
The TCC gave this short shrift because the Building Contract:
“… made clear that Lendlease was at all times responsible for the design of the Works and for achieving compliance with the requirements of the D&B Contract, irrespective of any review, approval or comment made by Project Co and/or the Trust. This seems […] to render the question of approval otiose.”
Similarly, the TCC rejected Lendlease’s claim that approval of the certificate of practical completion was evidence that its fire strategy was compliant with the Building Contract on the basis that the Project Agreement provided that:
“… the issue of the Certificate of Practical Completion shall, in the absence of manifest error, bad faith or fraud, be conclusive evidence for the purpose only of ascertaining the Payment Commencement Date, that the Actual Completion Date has occurred on the date stated in such Certificate… [and] the issue of any certificate … shall in no way affect the obligations of Project Co under this Agreement including in respect of any Defects.”
Project Co proved its case against Lendlease, demonstrating the value to the employer of agreeing a building contract that is clearly drafted to address the specific risks and issues of a particular project, as opposed to using a generic “one size” fits all building contract pulled off the shelf.