Belong v Seddon confirms PCSA liabilities can survive JCT contracts

The Technology and Construction Court has provided important guidance on how a Pre-Construction Services Agreement (“PCSA”) interacts with a subsequently executed JCT Contract, particularly on whether a contractor’s liability for breaches of the PCSA continues after the execution of the main contract. The decision in Belong (Construction) Ltd v Seddon Construction Ltd is significant for employers and contractors who regularly use PCSAs as a precursor to a formal building contract, and underscores the importance of precise drafting, particularly around the words “obligations” and “liabilities”.

Key takeaways

The decision carries important practical implications for those involved in procuring or delivering construction projects under PCSA arrangements:

• “Obligations” and “liabilities” are not interchangeable. In a PCSA merger clause, the use of “liabilities”, as opposed to “obligations”, is likely to be construed as preserving claims for pre-existing breaches of primary obligations, even after the main contract has been executed.
• A PCSA does not necessarily cease to exist on execution of the main contract. The presence of provisions such as limitation clauses in a PCSA which are expressed to run from events under the main contract can demonstrate that the PCSA retains independent legal significance after execution of the main contract.
• Contractor default provisions in the JCT Contract may capture pre-contractual conduct. Where a delay arises from a contractor’s breach of its PCSA obligations, an employer may be able to resist an EOT or loss and expense claim by reference to the standard JCT “error, omission, negligence or default” provisions, provided the connection between the two contracts is sufficiently proximate.
• Adjudicators should be conscious of the contractual language, not just the parties’ framing. The court noted that the adjudicator may have been misdirected by the way Seddon had framed the dispute, referring to “obligations” when the relevant clause in fact referred to “liabilities.” This serves as a reminder to adjudicators and parties alike to anchor their analysis in the actual contractual wording.

Background

Seddon Construction Limited (“Seddon”) carried out works for Belong (Construction) Limited (“Belong”) under a JCT Standard Building Contract (with Quantities), 2016 Edition (“the JCT Contract”). Prior to execution of the JCT Contract, the parties had entered into a Pre-Construction Services Agreement (“the PCSA”), which incorporated draft JCT Contract documents.

The dispute arose from air sealing works (“the ASW”) undertaken by Seddon pursuant to an instruction issued by the Contract Administrator during the course of the works. Seddon applied for an extension of time (“EOT”) in respect of the delay caused by the ASW. The Contract Administrator refused the EOT  on the basis that the need to carry out the ASW mid-contract arose from Seddon’s failure , to open up and test it at the pre-construction stage in breach of the PCSA.

Seddon denied any such obligation. It argued that the opening up and testing obligation had appeared only in the PCSA, and not in the executed JCT Contract. Seddon relied on clause 2.3 of the PCSA, which provided that on execution of the JCT Contract, “the parties’ respective rights and liabilities in respect of all matters with which this agreement is concerned… shall be subsumed into and be subject to the Contract.” An adjudicator agreed with Seddon. Belong then brought Part 8 proceedings seeking a final determination from the court.

The issues

The case turned on two principal issues:

First, whether the word “liabilities” in clause 2.3 of the PCSA meant the same as “obligations”, and therefore whether clause 2.3 had extinguished all of Seddon’s PCSA obligations (including any liability for pre-existing breaches) upon execution of the JCT Contract.

Second, whether the phrases “error, omission, negligence or default” in clauses 2.28.6.5 and 4.20.3 of the JCT Contract, which preclude a contractor from obtaining an EOT or loss and expense where delay is caused by its own default, were confined to breaches of the JCT Contract itself, or whether they could also capture conduct amounting to a breach of an obligation under the PCSA.

Decision

On the first issue, HHJ Stephen Davies held that “obligations” and “liabilities” are not synonymous in this context. Drawing on Lord Diplock’s analysis in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, the court distinguished between primary obligations (i.e., the duties owed under a contract) and secondary obligations or liabilities (i.e., the obligation to pay damages arising from a breach of a primary obligation). Once the JCT Contract was executed, clauses 2.1 and 2.2 of the PCSA made clear that the parties’ primary obligations under the PCSA came to an end. Clause 2.3, however, used the word “liabilities” deliberately, and that word most naturally referred to secondary obligations, i.e., liabilities arising from breaches of primary obligations already committed during the PCSA period.

The court also held that “subsumed into” did not mean the PCSA ceased to exist as a legal document. Support for this was found in clause 16 of the PCSA, which provided a 12-year limitation period running from practical completion under the JCT Contract for claims brought under the PCSA. That clause would serve no purpose if the PCSA had ceased to have any separate existence on execution of the JCT Contract, a result the court declined to adopt.

The effect of clause 2.3 was therefore that the parties’ primary PCSA obligations were superseded by the JCT Contract, but pre-existing liabilities for breaches of those primary obligations survived, subject to the terms of the JCT Contract (for example, any applicable dispute resolution procedure, time-bar, or limitation of liability provisions).

On the second issue, the court disagreed with the adjudicator’s narrow reading of the “error, omission, negligence or default” provisions. Those clauses do not confine themselves to “breaches of the terms of this Contract”, they are expressed in broader terms. Given the close relationship between the PCSA and the JCT Contract, and the court’s interpretation of clause 2.3, the Contract Administrator had been entitled to treat Seddon’s breach of its PCSA obligation as falling within those provisions. Belong was accordingly entitled to the relief it sought, subject only to some minor qualifying wording to avoid unintended wider effect.

Beale & Co has extensive experience in advising on pre-construction agreements, JCT contracts, contractual interpretation disputes, and the full range of construction dispute resolution mechanisms including adjudication and Part 8 proceedings. Should you require legal advice or support in view of the issues raised by this decision, please contact James Vernon.