Under Construction | A round-up of recent legal developments within the UK construction industry | December 2024

JCT Design and Build Contract 2024 and need for additional drafting in relation to the Building Safety Act

JCT's new Design and Build Contract 2024 was released in April and there was some hope in the industry that the updated standard-form construction contract would specifically address the detailed requirements of the Building Safety 2022 Act (BSA).

Unfortunately, this has not occurred.  While the JCT has made some effort to address some building safety concerns (for example, in relation to the new dutyholder regime which applies to all buildings), this contract has not provided the clarity that was expected and has fallen short of fully incorporating the BSA’s extensive provisions.

By way of particular example, the JCT D&B 2024 does not include any specific drafting in relation to "higher-risk buildings" (HRBs). The BSA defines these as buildings of at least 18 metres in height or least seven storeys, which either contains at least two residential units, or is a  hospital or care home.

For HRBs, the BSA has specific requirements, such as the gateway approval process and the creation and maintenance of the "golden thread" of building information relating to the different stages of a building's lifecycle – these are just some of the principles which have not been covered by the new contract.

JCT commentary seems to suggest that it envisages some of these concepts being dealt with by way of amendments to the standard form. This means that, for HRBs, the contract is not ready to go off the shelf and will need extensive modifications through an accompanying schedule of amendments to pick up the requirements of the BSA.

Parties to the contract should also consider whether additional drafting is required in relation to risks associated with the BSA (among other things). These risks include how to manage potential delays caused by the gateway regime, who will bear the responsibility for the preparation and submission of building safety regulator applications, and how the golden-thread information requirements will be managed and maintained. 

The UK Carbon Border Adjustment Mechanism – a summary

In December 2023, the UK government announced plans to implement a UK Carbon Border Adjustment Mechanism (CBAM), to tax imports of carbon-intensive goods from specific sectors that are most at risk of "carbon leakage".

This initiative aims to prevent the relocation of energy-intensive activities outside the UK, support decarbonisation and complement the EU's similar scheme on UK imports (see this Insight for further information).

In March 2024, the government initiated a consultation on the design and administration of the proposed CBAM. As part of the Autumn 2024 Budget, the government's response to the consultation was published, and it was confirmed that the CBAM will be introduced on 1 January 2027.

How will CBAM work?

Carbon leakage is the movement of production and associated emissions from one country to another, motivated by  different levels of decarbonisation effort, regulation and carbon pricing. The CBAM will mitigate against the risk of carbon leakage by implementing a tax, known as the "CBAM rate", on imported goods based on their carbon emissions. The CBAM rate will reflect both the carbon emitted in the production of the goods and any disparity between the carbon price in the country of origin and the carbon price faced by UK-based production.

The CBAM will apply to imported goods from the following high-emission sectors: aluminium, cement, fertiliser, hydrogen, and iron and steel. Within these sectors, it will only apply to a specific list of "CBAM goods", identified by commodity codes as listed in Annex B to the response to the consultation.

Products from the glass and ceramic sectors that also give rise to a risk of carbon leakage will be considered for future inclusion, from 2027, but will not be in the initial scope of the CBAM.

The sectoral scope of the CBAM will be continuously reviewed beyond 2027 to ensure that it remains effective in mitigating carbon leakage risks as the UK progresses in its decarbonisation efforts.

To whom will it apply?

Liable persons under CBAM will be those responsible for the goods upon their release into free circulation, with a minimum threshold of £50,000 worth of CBAM goods over 12 months.

Once it takes effect, from January 2027 the liable person will be responsible for registering, submitting returns and paying the CBAM to HMRC.

Next steps

The government has confirmed that it will continue to engage with key stakeholders that represent the sectors and industries most affected by the CBAM through the establishment of an industry working group.

The CBAM will require the enactment of both primary and secondary legislation, which the government will publish in draft to facilitate review by interested stakeholders.

UK businesses importing relevant CBAM goods should start preparing for the new requirements, including collecting necessary emissions data.

Leasehold and Freehold Reform Act 2024 – amendments to the BSA that commenced on 31 October 2024

The Leasehold and Freehold Reform Act 2024 (LFRA) received royal assent on 24 May 2024, and was the last statute to be passed before this year's general election.

The LFRA introduces a series of amendments to the BSA (reported on here), the most recent of which took effect on 31 October 2024 and expanded the scope of remediation orders (ROs) and remediation contribution orders (RCOs) to place the cost burden of remedial works more squarely on landlords and developers.

ROs and RCOs can be issued by the First Tier Tribunal (FTT). Broadly, ROs require relevant landlords to remediate a relevant building that has safety defects, and RCOs require those who are deemed to have contributed to a building's safety defects to make financial contributions towards the cost of remediation.

The case of Triathlon v SVDP & Gt Living highlighted uncertainty over whether interim and temporary measures, such as waking watch or temporary fire alarms, fall within the remit of RCOs. The FTT held that these were covered.

This case is being appealed in the Court of Appeal, with the appeal again illustrating uncertainty over the inclusion of interim and temporary measures within the remit of RCOs. This uncertainty has now been alleviated, with the BSA amendments reflecting and confirming the FTT's approach, with this and other points at issue now to be tested at the appeal.

New definitions

The amendments introduce new definitions to enable an application for an RO or an RCO to include claims in respect of "relevant steps".

"Relevant steps" are, in summary, defined to include:

• preventing or reducing the risk of fire or building collapse;
• reducing the severity of an incident; or
• preventing or reducing harm to people due to relevant defects.

The amendments have also provided clarity on the types of costs that can be included in an RCO, which can include, for example, the costs of obtaining expert reports relating to relevant, or potentially relevant, defects or relevant steps, and the costs of sourcing temporary accommodation costs for those affected by defects. The changes to the costs that can be subject to an RCO will apply to both pending and future proceedings.

Where a service charge is not payable in respect of a "relevant measure" in relation to a relevant defect in certain specified situations, "relevant measure" is defined to include both measures taken to remedy a relevant defect and a relevant step (defined above) taken in relation to those relevant defects.

Supreme Court hearing on allocation of liability for remedial work

In December 2023, the Supreme Court granted URS Corporation Ltd permission to appeal the Court of Appeal's decision in URS Corporation Ltd v BDW Trading Ltd (see our Insight).

The appeal concerns the allocation of liability in circumstances where the respondent property developer (BDW) carried out remedial work:

• on properties it no longer owned, due to allegedly negligent work by URS; and
• in respect of defects for which BDW cannot be held liable due to the expiry of limitation periods.

The hearing took place between 2-5 December 2024 before a panel of seven Justices. The issues in dispute are whether:

• BDW suffered actionable and recoverable damage within the duty of care owed to it by URS;
• the retrospective extended limitation periods under section 135 of the Building Safety Act 2022 apply to claims brought before section 135 came into force;
• whether section 1(1)(a) of the Defective Premises Act 1972 applies only to purchasers or also to commercial developers; and
• whether BDW can bring a contribution claim against URS under section 1 of the Civil Liability (Contribution) Act 1978, without a judgment or settlement with a third party and without any third party asserting a claim against BDW.

A decision could be handed down around spring 2025.

Osborne Clarke acts for BDW in the claim.

Court refuses to injunct adjudication save for exceptional circumstances

The recently published decision in Beck Interiors Ltd v Eros Ltd [2024] EWHC 2084 (TCC) reiterates that exceptional circumstances are needed to persuade a court to grant an injunction to restrain a party from adjudicating against another without the court's permission.

While the court has jurisdiction to do so, it will only be exercised in very rare and clear-cut cases where an adjudication is shown to be unreasonable and oppressive.

Background

Beck Interiors Ltd was contracted by Eros Ltd for the design and fit-out of a £40.2m project at The Residence, Mandarin Oriental in Hanover Square. Eros initiated four adjudications in a 13-day period in May 2024, claiming additional costs due to the hotel's late opening as part of an ongoing litigation including several previous adjudications and ongoing Part 8 proceedings, with other claims also being considered.

Beck applied to restrain Eros from issuing any future adjudication notices without court permission and asked for the four notices of adjudication to be withdrawn.

Judgment

The court refused Beck's application, emphasising:

• the parties' statutory right under the Housing Grants, Construction and Regeneration Act 1996 to refer disputes to adjudication at any time; and
• previous authorities illustrating that the court will only interfere in an adjudication where it was unreasonable and oppressive for it to be pursued.

The judge acknowledged that Beck would face an "inevitable burden" by having to deal with four adjudications simultaneously, but that was a "product of the right to commence adjudication at any time". She saw nothing in the timetable arguments or anything else that could be described as "unconscionable, unreasonable or oppressive" in Eros' approach to justify a policing of the adjudications by the court; which should only be done sparingly.