17 July 2020
David Hastie, Senior Associate, Corrs Chambers Westgarth
Todd Spiller, Senior Construction Lawyer, Macfarlanes LLP
Welcome to Corrs High Vis. My name is David Hastie, Senior Associate in Corrs’ Projects Practice Group.
Well, the world remains gripped by the economically crippling effects of COVID-19. One important consideration for us in the construction industry here in Australia is – how will contracting parties best avoid protracted formal dispute due to unforeseen impacts arising from this global pandemic?
Interestingly the UK is providing us with somewhat of a crystal ball. The pledge, as it is known, is an industry-developed and driven response to conflict avoidance developed by London’s Royal Institution of Chartered Surveyors and launched in January 2018. While it isn’t directly linked to the COVID-19 pandemic this conflict avoidance approach was formally endorsed in April of this year by the Construction Leadership Counsel or the CLC.
The CLC has followed up in May with tailored guidance on dispute avoidance in the construction industry, with the UK Government also following suit issuing wider guidance about responsible contractual behaviour. With over 130 companies signed up to the pledge it is a good case study for Australia’s construction industry.
I’m joined by Macfarlanes LLP Senior Construction Lawyer, Todd Spiller, who will be able to give us a better insight into this approach and whether it is worth adopting in Australia. Todd, thanks for joining us. I might start by asking you – what sort of impact has COVID had on the UK Construction Industry?
As listeners in Australia may be aware, the UK is easing from lockdown at a slower rate than Australia. But there is relief in sight, and restrictions are beginning to dissipate albeit cautiously and while the construction sector was one of the first that was urged back to work here, which is a while ago now. COVID-19 had and really continues to have a significant impact on the construction industry.
At Macfarlanes we have been very busy advising in relation to issues which others have no doubt also confronted. Matters such as force majeure, suspension, termination and the position on those issues has, at least in part, been informed by an abundance of regulation and other policy here in the UK. Statutory restrictions in relation to the operation of businesses, personal movement and gatherings are being implemented pursuant to regulations issued under the Public Health Act, and I suppose more particularly for the construction industry the Construction Leadership Council or the CLC has published site operating procedures containing guidance in relation to the performance of construction work during the pandemic.
Your first question might be - well what is the CLC? In short, it’s an entity that sits as an interface really between the construction industry and the Government in the UK, with the stated objective (which is sort of somewhat opaque, I guess) of driving industry improvement. So the site operating guidance issued by the CLC dealt with practical issues. So travelling to work, site access and egress, site facilities and plans to avoid working in close proximity.
By way of example in light of the Government issued guidance about maintaining a personal two metre distance, the CLC site operating procedure said well – here are some controls to either achieve that end or mitigate the impact of being unable to do so.
Naturally the intentions are good, but how are you seeing this play out practically in the UK?
The Site Operating Guidelines is well intentioned but it’s been somewhat chaotic in its delivery. There has been four versions of the guidance reflecting effectively the progression from complete lockdown to an easing of the COVID-19 interaction guidelines.
But there’s been some anomalies, so I think version two was issued and then withdrawn within a period of two hours. And so for a time identifying the applicable guidance and responding accordingly was somewhat difficult. So the guidance isn’t overly prescriptive and therefore it’s somewhat vague.
Leaving that to one side, for me one of the more interesting aspects of the industry response and the one that I wanted to dwell on briefly has been the conflict avoidance component. So in short, participants in the industry have been encouraged to collaborate and to avoid disputes, resolve issues emerging from COVID-19. This concept is interesting and admirable not only for its good intentions but interesting also because it may ultimately be impotent.
I will take you through the relevant history. So to trace the emergence of conflict avoidance in the UK construction industry, at least the recent history, one needs to start with the conflict avoidance pledge. The pledge was developed by RICS and launched in January 2018, and as such it’s not directly linked to the COVID-19 pandemic. However at the end of April this year the CLC, so the Construction Leadership Council, which I referred to earlier, endorsed it which suggests that renewed interest or applicability in light of COVID-19.
You can find the terms of the RICS pledge on line. The relevant website indicates that about 130 companies have signed up to it. However it is hilariously woolly. The pledge includes a number of motherhood statements which are given by each signatory to the pledge which I will give you a flavour of and I’m only quoting in part here. So one pledge is – we believe in collaborative working and the use of intervention techniques. Another: we commit to working proactively to avoid conflict and to facilitate a resolution to potential disputes. And another: we commit to work with our industry partners to identify, promote and utilise conflict avoidance mechanisms.
So I am not diminishing these pledges – they are all obviously useful aspirational statements. However, they are just that – aspirational statements. More recent developments put a bit more meat on the bone in relation to the COVID-19. So the CLC’s endorsement of the pledge in April this year was followed by its issue, so CLC publication on 7 May of Guidance on Dispute Avoidance in the Construction Industry, a copy of which can also be found on line.
The same day, the Government issued wider guidance about what it terms responsible contractual behaviour in light of COVID-19. So at that point May this year in effect you’ve got three bodies, RICS, the CLC and the UK Government, saying – let’s all be a bit nicer to each other. Again I want to emphasise the guidance is well intentioned. It was introduced because of a concern in the industry which will be familiar to everyone listening – that the industry is going to be embroiled in costly and long running disputes over the effect of COVID-19 unless we engage in collaborative discussions and solutions.
The difficulty I think is that the guidance is hardly ground breaking. So for the most part the CLC dispute avoidance guidance simply provides really a shopping list of things that well advised parties would already be considering. It promotes collaborative contract administration and proactive action in relation to typical issues. The granting of EOTs, the sharing of costs, mutual no fault suspensions, adjustment of termination triggers and also the use of without prejudice negotiations. As I said, matters that well advised parties should already be considering.
The Government guidance’s to responsible contract behaviour is similarly high level. It perhaps understandably does not conscribe at what responsible behaviour is instead it identifies contractual conduct which is likely to be impacted by COVID-19 and circumstances where responsible behaviour is encouraged, such as making or responding to time costs, FM, termination claims or making RFIs, issuing notices and the like. The Government guidance does go a tad further than the CLC guidance, in that it encourages contracting parties to reconsider the need to commence and continue formal dispute resolution procedures, including proceedings in Court and for reluctant participants to dispute proceedings, it’s therefore attempting to point to that guidance for the purpose of potentially startling or delaying dispute resolution.
Have you seen this play out at all in practice in the UK currently?
In our practice at Macfarlanes we’re already seeing the CLC and Government guidance deployed in contractual correspondence and as part of the adjudication proceedings.
So respondents are pointing to the guidance in an effort to either compel agreement or protest about the enforcement of contractual rights. However at least for the moment the guidance doesn’t figure to be overly powerful, because it does not have statutory force and indeed it does not amend any contracts and is expressly non-binding.
Shortly after the guidance was introduced by both the CLC and the Government, Sean Brannigan QC of Pump Court Chambers wrote a piece where he described the guidance as ‘toothless’. But something he said which laid foundations for further measures – he described it as a form of enforcement by politics, whereby effectively the Government implores parties to act in a collaborative way but warns them that it may be inventionous if the guidance is not observed.
Subsequent to that I attended a seminar by Sean Wilken QC of Keating Chambers last week, and he went a bit further. First, he acknowledged that yes from a black letter lawyer perspective the guidance has no effect. Secondly, he noted that there were some within the industry that say it should have some force. The question he put though is how is it given effect, by an implied term or some sort of purposive construction? And he suggested maybe neither, because if you apply contractual orthodoxy you look at the intention of the parties at the date of the contract and you reach the conclusion that that intention was unlikely reflected in either the CLC or the Government guidance, which wasn’t anticipated and of course didn’t exist until recently.
Todd, in your opinion did both the CLC and UK Government guidance have the potential to impact positively on parties in disputes moving forward post-COVID? And more relevantly to us, what can parties in Australia learn from this approach adopted in the UK?
In my view, the guidance from both the CLC and the Government has the potential to be effective at least as a matter of optics or perception. For example, in adjudication or court proceedings, it might not be determinative, but it might inform which party the third party so be adjudicated for example, considers is or has acted reasonably.
I’m not sure what the next steps will be in Australia – given the time that’s passed it seems unlikely that government or industry bodies will issue similar guidance. However that’s not to say that the UK guidance cannot be helpful in your particular circumstance. In the UK the guidance is very much a moving feast, however there’s plenty of material there to provide direction as to how contracting parties should behave and for parties to rely upon as part of any dispute resolution proceedings.
Thanks very much for that, Todd. So in summary it seems that while contracting parties continue to navigate disputes arising post-COVID, the CLCs conflict avoidance pledge may be more aspirational than practical. To be expected given the pledge is not enshrined in legislation it is not surprising some legal circles are dismissing the approach as toothless, given it’s not binding on the parties. That said, the UK Government’s proactive approach to encouraging collaborative dispute resolution and contracted administration is commendable.
Until next time thanks for listening.
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