07 June 2018

The background

Earlier this year the Court of Appeal handed down judgment in Clin v Walter Lilly & Co Ltd [2018] EWCA Civ 490 on appeal from a judgment of Edwards-Stuart J in the Technology and Construction Court.

Mr Clin owned two adjoining properties within the Kensington Palace Conservation Area. In September 2012, Mr Clin engaged Walter Lilly to carry out works at the properties based on an amended Standard Form JCT Building Contract. In July 2013, the local planning authority (LPA) informed Walter Lilly that the proposed work amounted to ‘substantial demolition’ that necessitated conservation area consent. Works halted on the properties pending the grant of the necessary permissions from the LPA.

A dispute arose as to which party should be responsible for obtaining the necessary planning permissions under the contract and the risk arising from any delay and/or costs to the project until such time as the permissions were granted.

Crucially, the contract (except for minor unrelated provisions in one of the annexures) contained no reference to planning approvals and did not expressly impose on either party any obligations to apply for, or obtain, planning permission or conservation area consent.

The court’s decision

Refining the reasoning set out by Edwards-Stuart J in his first instance decision, the Court of Appeal agreed that a term should be implied into the contract that required the employer, Mr Ciln, to use ‘ all due diligence’ to obtain any permission, consent, approval or certificate required in respect of the works. Without the necessary permissions, the works would have been illegal.

The Court of Appeal considered that ‘ all due diligence’ in this context required the employer to:

  • make a timely application for any such permission or other approval or ensure a timely application was made on his behalf; and
  • ensure sufficient information was provided to the LPA in support of the application co-operate with the LPA in the statutory process.

However, the court considered that this implied term should be read together with the existing terms of the contract and their respective risks thereunder. It was clear that:

‘It is not the court’s task, retrospectively, to craft a specific allocation of risk under the contract to deal with the ramifications of the implied term, as if the parties had anticipated the dispute that has now arisen between them’.

Therefore, although the employer had to use all due diligence to obtain the necessary permissions, it did not automatically follow that the employer would be liable to the contractor if the LPA withheld and/or delayed that permission. Whether a ‘Relevant Event’ or ‘Relevant Matter’ arose under the contract would depend on the facts and this could not be addressed within an ‘evidential vacuum’.

When will the courts usually imply a term into a building contract?

The courts are generally reluctant to imply terms into a contract if the express terms are sufficient. However, there are scenarios, such as in the case above, that an implied term will be necessary to reflect the parties' intentions and commercial common sense in order to ‘make the contract work as the parties must have intended’.

In the leading case of Marks and Spencer PLC v BNP Paribas [2015], Lord Neuberger confirmed that when considering whether to imply a term the court should take into account the following factors:

  • Whether the term is required to give business efficacy to the contract.
  • The words used in the contract.
  • The surrounding circumstances known to both parties at the time of the contract.
  • Commercial common sense. The objective intentions of the parties, viewed from the point of view of the reasonable reader or reasonable parties.

The courts have made it very clear that a term will only be implied into a contract after the process of construing the express words is complete. The general principle is still that a term may only be implied into a contract where it is strictly necessary.

Take-away points – ensure allocation of planning risks are expressly dealt with under the contract

The case acts as a timely reminder of the importance of careful drafting and ensuring fundamental responsibilities are expressly allocated between the parties in the building contract.

Construction projects will often require a raft of different permissions and statutory consents. Depending on the nature of the works, the responsibility for obtaining these may be best placed with the employer or, in relation to unusual or specialist development works, may fall more appropriately within an experienced contractor’s remit. While some standard form contracts (such as the International Federation of Consulting Engineers (FIDIC) Red Book) already allocate responsibility, other common forms of contract (such as JCT) do not. Parties should therefore give some thought as to how responsibility for obtaining such permissions is allocated and the liability if the process is delayed. 

The judgment in Clin indicates that, absent express terms, the employer will likely be required to use all due diligence to obtain the required planning permissions. However, issues may still arise where such permissions are withheld or delayed through the fault of neither the employer nor the contractor. In order to avoid costly disputes later as to who should pick up the bill in the event that the permissions are delayed, clear and express terms should be considered to allocate the risks and contractual ramifications at the outset.

How can Burges Salmon help?

If you would like help or advice, please contact Richard Adams from our construction and engineering team.

Key contact

Richard Adams

Richard Adams Partner

  • Construction and Engineering
  • Construction Disputes
  • Energy and Utilities Disputes

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