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Construction Disputes Landscape for 2024: The here and now and what to expect next

March 2024

As we near the end of the first quarter of this year, Ian Masser and Sophie-Rose Bowen take a look at some of the issues that have impacted the UK construction disputes landscape recently and could shape the industry moving further into 2024.

New UK Legislation:

The construction industry continues to monitor the impacts of new UK legislation introduced over the past 18 months. This includes:

• The PPA requires contracting authorities, when carrying out a relevant procurement, to have regard to the importance of delivering value for money, maximising public benefit, providing transparency and sharing information. The PPA will significantly impact how procurement processes in the UK construction industry are run in 2024 and beyond.
• The Energy Act 2023 (“EA”) which received Royal Assent on 26 October 2023. Until such time as the relevant secondary legislation is implemented, it is yet to be seen how the EA could shape the long-term future of the UK’s construction industry. However, it is clear from the primary legislation that the UK Government envisages that the construction industry will play a key role in the UK achieving a net zero transition. The EA sets out a number of key requirements, particularly in relation to the construction of new sustainable energy projects.
• Furthermore, the Public Procurement Act 2023 (“PPA”), which received Royal Assent on 26 October 2023, is expected to come into force in October 2024. The PPA requires contracting authorities, when carrying out a relevant procurement, to have regard for the importance of delivering value for money, maximising public benefit, providing transparency and sharing information. The PPA will significantly impact how procurement processes in the UK construction industry are run in 2024 and beyond.

The Law Commissions’ final report on the proposed amendments to the Arbitration Act 1996 and its accompanying draft legislation was introduced into Parliament in late 2023 via the Arbitration Bill 2023-2024. It is anticipated the bill will pass through Parliament later this year. The proposed changes to the Arbitration Act cover a range of issues such as codifying Arbitrator’s duties of disclosure, granting powers of summary disposal to Arbitrators and clarification of the Court’s powers in relation to appeals, amongst other things. This new legislation is expected to aid Arbitrators in handling the growing number of claims the industry is expected to see this year and further down the line.

In addition, since coming into force on 28 June 2022, the requirements of the Building Safety Act 2022 (the “BSA) have been gradually introduced by secondary legislation.

The Building Safety Act 2022 (Commencement No. 5 and Transitional Provisions) Regulations 2023 were made on 11 September 2023. The Regulations brought into force various sections of the BSA relating to higher-risk buildings on 1 October 2023, including the registration of higher-risk buildings with the Building Safety Regulator. The latest series of provisions came into force on 16 January 2024 via the Building Safety Act 2022 (Commencement No.6) Regulations 2024. These latest provisions include (but are not limited to) those relating to Building Assessment Certificates, the requirements to assess and manage building safety risks and the requirements to produce a “Safety Case Report”. The Building Safety Act 2022 (Commencement No 7 and Transitional Provisions) Regulations 2024 (SI 2024/104) are expected to come into force on 6 April 2024. These Regulations are expected to set out transitional provisions dealing with projects that are ongoing under the powers of an approved inspector.

Building Safety Case Law:

Since coming into force on 28 June 2022, the principles established by the BSA have been finding their feet in the Courts. We discuss below some of the recent notable decisions.

Limitation Periods

One of the key changes implemented by the BSA was the extension of the limitation period for claims under the Defective Premises Act 1972, which imposes various duties on those involved in the design, construction, and management of residential buildings.

In 2023, the Courts began to navigate the new 30-year retrospective limitation period. In URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772, the Court of Appeal confirmed that the BSA has retrospective effect, and thus allowed a party to amend its claim to include an alleged breach of the Defective Premises Act 1972, even though the limitation period expired before the BSA came into force, when such a claim was statute-barred. The Court of Appeal’s Judgment is due to be appealed to the Supreme Court and has been listed to be heard in early December 2024.

We await the outcome of further decisions addressing the extended limitation periods in the BSA.

Remediation Orders / Remediation Contribution Orders

Section 123 of the BSA grants the power to make a Remediation Order (“RO”) requiring developers or landlords to remedy ‘relevant defects’ in a ‘relevant building’. Last year, we saw the First Tier Tribunal grant the first RO against a landlord in Waite & Others v Kedai Limited LON/00AY/HYI/2022/0005 & 0016. Here, the landlord was ordered, in August 2023, to remedy the defects specified in the RO by 19 September 2025.

Furthermore, section 124 of the BSA enables any person with a legal or equitable interest in a relevant building or any part of it to apply for a remediation contribution order (“RCO”), by which developers and landlords may be required to contribute towards the costs of remedying relevant defects. Provided the relevant conditions are met, a RCO can be made where it is considered ‘just and equitable’ to do so.

On 19 January 2024, the First Tier Tribunal (Property Chamber) published the decision in Triathlon Homes LLP v Stratford Village Development Partnership (1) Get Living PLC (2) East Village Management Limited (3) [2024] UKFTT 26 in relation to RCOs. Here, the Court considered the ‘just and equitable’ test under section 124 of the BSA for the first time. The decision provides guidance on the relevant facts that determine when a RCO can be awarded and the relevant remediation costs that can be subject to the order. The decision highlights that where remedial works may have commenced or even completed before the implementation of the BSA, this should not prejudice an applicant’s chance of obtaining an RCO. Furthermore, where remedial works have already obtained funding, such as via the Building Safety Fund, this should also not impede the granting of an RCO. The Court also held that a change in ownership of the relevant building should not stop an RCO being made.

In 2024, we expect more utilisation of the sanctions and enforcement routes in the BSA, which could mean further applications for ROs and RCOs and further guidance by the Courts on the ‘just and equitable’ test.

Building Liability Orders

The BSA also introduced the concept of Building Liability Orders (BLOs). BLOs can allow parties to seek to ‘pierce the corporate veil’ and pursue parent companies or related corporate entities for building-safety related liabilities of their associated companies.

In considering an application for a BLO, the Courts will have to decide in each case whether it would be ‘just and equitable’ to make a BLO. While BLOs were introduced over 18 months ago, we are yet to see Courts grapple with that test. However, we anticipate that, in 2024, the test will be considered by the Courts for the first time.

The concept of BLOs was introduced by the BSA primarily to protect claimants from SPVs being set up on projects and then liquidated on completion of the works, thus seeking to avoid liabilities in relation any issues that subsequently arose. However, BLOs are being sought by claimants in various scenarios not involving the creation and liquidation of SPVs. Given the non-prescriptive nature of the requirement of a BLO to be ‘just and equitable’, the Courts are soon going to have to consider whether the ‘just and equitable’ test is met in circumstances not previously envisaged by Parliament. How the Court construes such matters is likely to be highly dependent on the facts of each case

Remediation

With heightened focus on cladding remediation following the introduction of the BSA, the Courts have emphasised the importance of ensuring compliance with deadlines stipulated in improvement notices or other types of orders. In Newham Council v Chaplair, the Criminal Courts determined in October 2023 that a local authority could pursue a building owner for delays in carrying out works to replace cladding following an improvement notice being granted by the Housing Act 2004. Chaplair was prosecuted under section 30 of the Housing Act 2004 for a failure to comply with an improvement notice.

The Government’s Building Safety Fund provided funding for remediation of buildings 18 metres and above. Moving through and beyond the first quarter of 2024 we anticipate there is likely to be further focus on remediation work in relation to buildings under the 18-metre ‘higher-risk’ threshold in the BSA and resulting claims. The Government’s Cladding Safety Scheme (CSS) exists to provide a solution to meeting the costs of addressing fire safety risks associated with cladding for residential buildings in England 11 metres and above, and in Greater London between 11 and 18 metres. As of January 2024, there were a total of 1,190 buildings at different stages of the CSS scheme. So far, 127 of these total buildings are classed as eligible for the scheme, with 109 of the building being under 18 metres.

It should be noted that while there are some Government led schemes for the urgent funding of remedial works, the Government’s position is that the primary responsibility for resolving issues on buildings needing remediation rests with those involved in their original design and construction. The Department for Levelling Up, Housing and Communities (DLUHC) has in some instances already instigated recoveries against those deemed responsible parties to recoup sums expended to building owners under the Building Safety Fund.

Other Key Cases to Watch Out For:

Collateral warranties as construction contracts?

Whether a collateral warranty constitutes a construction contract for the purpose of determining a party’s right to adjudicate pursuant to the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”) is due to be reviewed again this year.

On 21 June 2022, the Court of Appeal decided in Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2022] EWCA Civ 823 that collateral warranties could be construction contracts for the purposes of the Construction Act. The Judgment provided some certainty in relation to the ongoing dispute as to the contractual status of a collateral warranty. However, it is expected that the Supreme Court will make a final ruling this year.

Depending on the outcome of the Supreme Court decision later this year, there could be wide reaching implications for the construction industry. It has the potential to further shape the legal implications of entering into a collateral warranty, including whether or not the parties to a collateral warranty can refer a dispute arising under that collateral warranty to adjudication under the Construction Act.

Alternative Dispute Resolution

At the end of last year, the Court of Appeal handed down its Judgment in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, confirming the Court can make an order for parties to engage in alternative dispute resolution (“ADR”) and/or stay proceedings to allow for ADR to take place.

This decision has potential to have a significant effect on the case management of legal proceedings by directing parties towards settlement at a much earlier stage. It remains to be seen whether the Court of Appeal’s decision in Churchill will result in an influx of parties seeking a stay of proceedings to facilitate ADR or seeking orders obliging other parties to engage in ADR this year. Whether or not the decision has any bearing on pre-action claims is yet to be seen but some clarification could be provided in 2024. However, as the demand for ADR increases, there will be a requirement for mediators to keep on top of the everchanging construction disputes landscape (see above), continue to develop the required specialist knowledge and a likely drive to increase the numbers of specialist mediators with construction disputes expertise to accommodate the rising number of claims being mediated.

On 12 January 2024, the Technology & Construction Court handed down its judgment in Lancashire Schools SPC Phase 2 Ltd (formerly Catalyst Education (Lancashire) Phase 2 Ltd) v Lendlease Construction (Europe) Ltd (formerly Bovis Lend Lease Ltd) [2024] EWHC 37 (TCC). In this case, the defendant sought to have the Court proceedings against them struck out on the basis that the project agreement between them and the claimant contained a mandatory contractual requirement that disputes must be referred to adjudication before litigation is commenced. The Court rejected this application and concluded that the contractual provision requiring that a dispute be resolved in accordance with adjudication was not enough to make adjudication a condition precedent to litigation and that, as was the case here, there were reasonable grounds not to bind the parties to the mandatory adjudication clause.

This was a fact specific outcome. It was determined that, in this case, there were issues very much contingent on the positions adopted by the other parties involved in the litigation, who would not be party to any adjudication between the claimant and the defendant. As such, it was viewed that mandatory adjudication could result in satellite adjudications. There were also concerns about the timing of any adjudication and whether an adjudication could satisfactorily resolve matters. The Court found that, in these circumstances, it was inappropriate to order mandatory adjudication and that instead it was appropriate to allow the claimant’s claim against the defendant to continue in litigation. The case highlights the uncertainty that parties can sometimes experience when relying on ADR provisions in contractual appointments.

Other Potential Trends in Construction Claims:

Phase 2 Report: – Grenfell Inquiry

The long-awaited Phase 2 report from the Grenfell Inquiry is due to be published in 2024. This comes after the Inquiry’s evidential hearings in November 2022. Although initially planned for publication in the first quarter of this year, the report is now expected to be finalised as we approach the second half of 2024.

On 12 January 2024, the Technology & Construction Court handed down its Judgment in Lancashire Schools SPC Phase 2 Ltd (formerly Catalyst Education (Lancashire) Phase 2 Ltd) v Lendlease Construction (Europe) Ltd (formerly Bovis Lend Lease Ltd) [2024] EWHC 37 (TCC).

The publication of the report has the potential to give rise to further claims against construction professionals and product suppliers.

Balcony Failures

Over the past year there has been a rise in claims against developers, contractors and engineers related to structural failure of balconies, especially in small residential balconies.

The collapse of a balcony at the Barking housing estate was widely reported in the press at the start of this year. A further 77 balconies were identified at a possible risk of collapse.

It is understood that wider investigations into balconies which may hold similar issues are now underway. It is yet to be seen the extent to which this could develop into an industry wide issue.

Artificial Intelligence

We anticipate that, in 2024 and beyond, the construction industry will continue to experience an integration of Artificial Intelligence (“AI”) across various projects. New research published by the Royal Institute of British Architects (RIBA) reveals that within the next two years, 54% of architects expect their practice to use AI.

Generative AI (or Gen-AI) is said to have the potential to improve outcomes for construction projects. By analysing data from past construction projects and applying this to new projects, the predictive abilities of Gen-AI are anticipated to improve the design of buildings, integrate more sustainable materials and advance compliance with regulatory requirements.

However, the increased utilisation of AI has the potential to introduce new complexities on construction projects, such as in the event of data inaccuracy or algorithmic issues. Wider issues such as those relating to data protection, cyber-security or intellectual property also have the potential to arise with the increased use of AI.

The legal industry continues to monitor the impact of AI on the UK construction industry. It could be a while before the first construction industry AI-related claim comes before the UK Courts.

While overseas, the EU is in the process of introducing the AI Act and the AI Liability Directive (which are expected to be implemented in 2024), there is currently no specific legislation governing AI in the UK. We are, however, seeing increased UK regulation of AI and emerging technologies.

The UK government’s approach is explained in the UK government’s white paper titled “A pro-innovation approach to AI regulation” published on 29 March 2023. Instead of implementing legislation, the white paper focused on setting expectations for the development and use of AI in the UK. A key takeaway from the white paper for construction businesses is the focus on accountability for AI systems. The government emphasised that AI systems should be subject to governance measures ensuring effective oversight, with clear lines of accountability across the AI life cycle and that regulators must look for ways to ensure that clear expectations for regulatory compliance and good practice are placed on actors in the AI supply chain. A number of regulators have been asked by the UK Government to publish an update outlining their strategic approach to AI by 30 April 2024.

Construction businesses, together with their insurers, will need to ensure that they keep up to date with any new AI-related legislative and regulatory developments, such as the proposed EU’s AI Act and AI Liability Directive, and any new or updated guidance from UK regulators.

The UK construction industry must also continue to review their own internal standards and guidelines to mitigate risks associated with AI implementation.

Concluding Remarks:

As we almost conclude the first quarter of 2024 and move further into the year, the UK construction industry finds itself navigating a dynamic, evolving landscape shaped by technological advancements and new legislation.

The UK construction industry will no doubt continue to embrace innovation and surmount the challenges arising in 2024, whether this be navigating the complexities of new AI technologies or aligning with evolving legislative changes.

The issues discussed above are expected to give rise a number of potential new risks and considerations for construction firms. By recognising the emerging trends in claims, and keeping abreast of all developments, construction firms can seek to minimise the potential for legal disputes.

We are tracking the topics discussed in this article and will be reporting back later this year. Should you require any assistance, or any advice, please contact Ian Masser or Sophie-Rose Bowen.

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