News Feed

I write this blog post from Barcelona, partly because I’m a bit behind on blogging, partly because I like to irritate my wife by not reading a nice John Grisham novel like every other husband on holiday and partly because I like to brag about being on holiday and there’s no better way of doing it than through the medium of blog.

As I’m sure almost every Barcelona tourist for the past few decades will have done at some point, I went to the Sagrada Familia today.  For anyone that has not yet been, it is an absolute must on the Barcelona tourist to-do list, and probably every single guide to the city would agree wholeheartedly.  The building as it is today is already awe-inspiringly huge and magnificently designed.  For anyone that’s interested in this sort of thing, most of it was designed by Antoni Gaudi, an architect with a very unique style of art nouveau.   It really is a fascinating place.

The downside to the Sagrada Familia is that it has not yet been completed.  Indeed, it is not due for completion until 2026.  In the scheme of construction projects, that might not immediately seem all that bad.  Let’s not forget that the first phase of HS2 is due for completion in 2026, with the final phase due for completion in around 2033, and that’s assuming there are no delays, complications, changes of government policy or other unforeseen issues.  In that context, 2026 actually seems quite efficient.

However, the construction of Sagrada Familia apparently started in 1882.  That’s a timescale of 144 years.  Obviously Gaudi is now long gone, and I think even some of the architects that came after him have long gone too.  But on the construction goes, through several international wars, a major civil war, a fascist dictatorship and the modern world in general.  It is funded entirely by public donations.

Anyone in the construction industry will, of course, be immediately wondering whether their insurance for long-term projects covers fascist dictatorships, and that’s something to be discussed with insurance brokers.  However, as a solicitor, I am reminded of a case I read about earlier this year which could have created untold issues for the Sagrada Familia in similar circumstances.

The case I have in mind is Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC), the judgment for which came out in January 2016.

Grove Developments is (as the name suggests) a developer and Balfour Beatty is a building contractor.  Grove Developments wished to build a nice hotel next to the O2 arena in London, and hired Balfour Beatty to do so, in return for a contract sum of £121 million.  They entered into a JCT Design & Build (2011) contract, quite sensibly, and agreed bespoke amendments to the contract, which is very common, and the parties envisaged a completion date of 22 July 2015. 

Part of the terms of the contract provided that Balfour Beatty was going to be paid 23 stage payments between September 2013 and July 2015.  That way, the parties presumably reasoned, Balfour Beatty would receive its final instalment around the time of completion. 

Unfortunately, the project did not go to plan (from a brief look on the parties’ website I can’t see what the underlying issue was, and the judgment doesn’t make it clear either) and did not complete in July 2015.  Balfour Beatty was therefore going to have to continue working on the project after July 2015, and expected to continue to receive monthly instalments thereafter until completion.  Grove Developments disagreed (from reading through the judgment, it looks as if Grove Developments may only really have disagreed after they realised what a whizzy argument it was), and argued that Balfour Beatty was only actually entitled to 23 stage payments and no more.

Pause there a moment to consider contractual terms.  Obviously express terms are (subject to various exemptions and details not worth going into for the purposes of this post) binding on the parties.  Also binding on parties are implied terms.  I was under the quite content impression for a few years from Lord Hoffman’s judgment in AG of Belize v Belize Telecom [2009] that implied terms really only served to reflect the true intentions of the parties, which made a great deal of sense to me and gave me hope for the future of the common.  However, apparently that nice simple formulation was not good enough for the other members of the Supreme Court, and we’re back to using the old “business efficacy” (the authority for which goes back to a case decided in 1889 called The Moorcock) and “officious bystander” (almost as old at 1926, following Shirley v Southern Foundries) tests (Marks & Spencer v BNP Paribas Securities [2015]).  The details of the surrounding case law supporting the “business efficacy” test are not worth going into here, but broadly speaking the idea is that a term can be implied into a contract in order to give that contract “business efficacy”.  Most modern judges tend to restrict the circumstances in which a term can be implied, but it can still be used and is argued regularly.

And, indeed, that’s exactly what the lawyers for Balfour Beatty tried to argue before Stuart-Smith J in the Technology and Construction Court in this case.  However, the judge said no.  It is no good to simply say that one of the parties would have wanted a particular clause if asked about it at the outset, or to say that it’s commercially unworkable without that implied term.  The test is whether the term is necessary for the contract to have commercial or practical coherence, regardless of how onerous a particular outcome is for one of the parties.  In any event, an implied term is unlikely to override an express term of the agreement.

There was a further argument forwarded by Balfour Beatty, which related to the Scheme for Construction Contracts.  For the uninitiated, this is a set of terms which are imposed on construction contracts where the parties have failed to agree in advance.  Sort of a “back-up” set of contractual terms for the construction industry, imposed as a result of the Housing Grants, Construction and Regeneration Act 1996 (which for reasons beyond me is still occasionally called the Hugh Grant Act by some in the industry).  One of the terms of the Scheme is for the contractor to be paid stage payments throughout a project.

Again, the judge said no.  The parties had agreed instalments, and those instalments ended after 23 months.  The “back-up” set of terms did not come into play. 

Poor old Balfour Beatty is therefore bound to continue with the project without stage payments, which will no doubt have a huge impact on cash flow.  There will be all sorts of sub-contractors and other professionals who will want to be paid themselves, and who will quite justifiably consider not working without their stage payments.  Balfour Beatty will (unless they have negotiated terms, which I expect they will have done, though no doubt at significant disadvantage to Balfour Beatty) therefore not get paid until completion of the project.

I imagine Antoni Gaudi now turning over in his grave, trying to phone the Abogado who put his construction contracts together asking about the implications of Balfour Beatty v Grove Developments for his masterpiece.  I imagine Abogado replying quite angrily, reminding him that the original contracts have been irrelevant for decades, and he’s lucky it’s got that far and wasn’t knocked down entirely by General Franco and the rebels that opposed him.  It really is a lovely building, though, the Sagrada Familia, and Barcelona is a wonderful city that I would recommend to anyone.  I would also recommend making sure your contractual arrangements are considered carefully before any major project but, as a construction lawyer, I would say that wouldn’t I?