Case Summaries – Page 5 – Construction Law

Appellate Division of New Jersey Upholds Jury Verdict in Connection with Misrepresentations Made by Developer

Jun 09 2014

By Christopher A. Barbarisi, Loly G. Tor, and Christopher J. Archer, K&L Gates, Newark

Builders and real estate developers should take note of a recent decision of the Appellate Division of New Jersey (the state’s intermediate appellate court), in which the Court upheld a jury verdict of $4,817,638.12 in connection with misrepresentations made by a developer in its marketing materials relating to the nature and quality of the views from high-rise riverfront condominium units.

Etelson v. South Shore Urban Renewal, L.L.C.[1], involved a group of sixteen purchasers of ten upper-floor condominium units (“Plaintiffs”) in the South Shore Club building in Jersey City, New Jersey. Plaintiffs contracted to purchase their pre-construction units in 2005. During sales negotiations, the developer (“Developer”), through its sales agents and marketing materials, represented to the Plaintiffs that their units—all east-facing and located on the 19th through 22nd floors—would enjoy unobstructed, panoramic views of the Manhattan skyline. At the time that the Plaintiffs entered into their sales contracts, there were no buildings in the area capable of obstructing the views of Plaintiffs’ units.

FIDIC Update: Clarity on Notice Provisions and Time Bars

May 19 2014

By Mike R. Stewart and Camilla A. de Moraes, K&L Gates, London

Case law on the FIDIC form of contract has to-date been scarce, particularly in respect of Sub-Clause 20.1.

The recent case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) gives an interesting judicial insight into the interpretation of Sub-Clause 20.1 as well as Sub-Clauses 4.12 (Unforeseeable Physical Conditions) and 15 (Termination).

The case was brought by the Contractor, Obrascon Huarte Lain (OHL), who was engaged to undertake the design and construction of a road and tunnel under the runway of Gibraltar airport. Subject to some minor amendments, the contract was based on the FIDIC Yellow Book.

The main issue for the court to determine related to the validity of the termination of the contract by the Employer, the Government of Gibraltar. The court also considered the Contractor’s compliance with Sub-Clause 20.1 in respect of extension of time claims brought for the discovery of rock and exceptionally adverse weather (pursuant to Sub-Clause 4.12).

Sub-Clause 20.1
Sub-Clause 20.1 must be complied with where the Contractor “considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract…”

The requirement is that the Contractor must notify the engineer, describing the event or circumstance giving rise to the claim “as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.” [emphasis added]

If the Contractor fails to give notice of a claim within the 28-day period, he shall not be entitled to an EOT or any additional payment and the Employer shall have no liability in respect of such claim.

The 28-day period referred to within Sub-Clause 20.1 does not run from the occurrence of the event or circumstance giving rise to the claim. Instead, it runs from when the Contractor “became aware, or should have become aware, of the event or circumstance” giving rise to the claim.

Less clear is whether the 28-day period starts running when the Contractor is aware (or is deemed to be aware) of (i) the event or circumstance or (ii) the fact that the event or circumstance is to have time and/or cost consequences such that he is entitled to an EOT or additional payment.

In his judgement, Mr Justice Akenhead saw no reason why Clause 20.1 should be construed strictly against the Contractor, especially given the serious consequences of such an approach, namely that the Contractor would lose entitlement to what otherwise might be a good claim against the Employer.

Mr Justice Akenhead, in reaching his decision, made reference to Sub-Clause 8.4 of the FIDIC conditions, which sets out the circumstances in which the Contractor is entitled to an extension of time. Sub-Clause 8.4 states that:

“The Contractor shall be entitled subject to Sub-Clause 20.1…to an extension of the Time for Completion if and to the extent that the completion for the purposes of Sub-Clause 10.1…is or will be delayed by any of the following causes…” [emphasis added]

The judge placed particular emphasis on the words identified in bold in the paragraph above. He stated that the entitlement to an extension clearly arises either when it is clear that there will be a delay (a prospective delay) or when the delay has at least started to be incurred (a retrospective delay). From this, he concluded that notice does not have to be given until there actually is a delay.
Whilst of course the Contractor can give notice when it reasonably believes that it will be delayed, it is not required to do so. Sub-Clause 8.4 grants the Contractor the choice by virtue of the word “or” between “is” and “will be.” If the Contractor was required to give notice on the earlier date, the wording of Sub-Clause 8.4 would have read “is or will be delayed whichever is the earliest” [emphasis added].

Further, the judge held that whilst there is no particular form of notice required pursuant to Sub-Clause 20.1, it must be recognisable as a “claim”. In this case, OHL had tried to rely on a monthly progress report which stated that “The adverse weather condition (rain) have [sic] affected the works” to constitute the requisite notice for an extension of time. In the judge’s view, this was “clearly nowhere near a notice under Clause 20.1.”

Mr Justice Akenhead confirmed that the onus is on the Employer to establish that a notice is not given in time. In any event, in this particular case, OHL failed to give notice of the exceptionally adverse weather within the 28-day period and, therefore, was only entitled to a one-day extension to the Time for Completion.

Sub-Clause 4.12 (Unforeseeable Physical Conditions)
The court, in determining whether OHL had encountered unforeseeable physical conditions, was required to consider the ground conditions that were reasonably foreseeable by an experienced Contractor at the date of the submission of the tender. OHL had been provided with site data, and had been told to allow for a substantial volume of contaminated material, but had not done so.

The court held that OHL should have carried out “some intelligent assessment and analysis” of why the site was contaminated and what the real risk was of encountering more contaminated material than had been envisaged at the tender stage. OHL had failed to do so and, therefore, its claims were rejected.

Sub-Clause 15 (Termination)
The court also had to consider whether the Employer had lawfully terminated the contract with OHL. Sub-Clause 15 provides that the Employer is entitled to terminate the contract if the Contractor (having been given notice) does not rectify a failure to carry out any obligation under the contract. The court held that Sub-Clause 15 is generally to be construed as permitting termination for significant or substantial breaches, rather than trivial or insignificant ones, but rejected OHL’s argument that the breach relied upon must be equivalent to a repudiatory breach of contract.

The court ultimately found in the Employer’s favour with regards to the lawfulness of the termination. Amongst other things, this was on the basis that OHL failed to progress the Works with due expedition, thereby breaching Clause 8.1 of the Contract. This allowed the Employer to terminate under 15.2(c) and recover all costs associated with the termination and completion costs, insofar as the same exceeded OHL’s original contract price. The award is likely to be the largest ever awarded to the Government of Gibraltar and will, therefore, have significant economic consequences, not least that it should be able to finalise the works commenced by OHL and have a working tunnel under the runway.

Conclusion
This recent case provides welcome clarity with respect to a number of matters.

Most importantly it highlights that, under Sub-Clause 20.1 of the FIDIC conditions, the clock does not start running for the Contractor until the date on which he is aware (or should have been aware) of the delay resulting from a particular event or circumstance. Although the court only considered Sub-Clause 20.1 in respect of an extension of time, the same principle is expected to apply to claims for additional payment made pursuant to this provision.

Claims made pursuant to Sub-Clause 20.1 must be identifiable as claims, with a description of the event or circumstance relied on, and must state that the notice is intended to notify a claim for an extension of time or additional payment under the contract. A passing reference to a particular event will not, on its own, be sufficient. However, it is important to note that whilst this judgment is likely to be viewed as positive for Contractors, it is certainly not carte blanche for the Contractor to disregard the notice provisions all together. He still has to comply with the 28-day period; it simply starts a little later.

Alabama Supreme Court Clarifies Position on Construction Coverage Question

Apr 29 2014

By Frederic J. Giordano and Robert F. Pawlowski, K&L Gates, Newark

Damage to Contractor’s Work Resulting from Faulty Workmanship Does Constitute "Property Damage" Caused by an "Occurrence" under Standard CGL Policy

In an important decision for policyholders in the construction business, the Supreme Court of Alabama recently clarified that Alabama law is in accord with the growing majority of jurisdictions finding coverage for property damage arising out of defective workmanship. Adding precision to its prior holdings and citing with approval various out-of-state authority, the Alabama high court confirmed that the definition of “occurrence” does not exclude property damage caused by faulty workmanship and that damage to other parts of a structure caused by defective workmanship constitutes “‘property damage’ ‘caused by’ or ‘arising out of’ an ‘occurrence.’” Owners Insurance Company v. Jim Carr Homebuilder, LLC, —So.3d—, 2014 WL 1270629 *6 (Ala. March 28, 2014).

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New York Court holds that Indian Sovereign Immunity does not Extend to For-Profit Corporation

Jul 23 2013

Sue/perior Concrete & Paving, Inc. v. Lewiston Golf Course Corp., — N.Y.S.2d—, 2013 WL 2674470 (N.Y. App. Div. June 14, 2013)

In Sue/perior Concrete, the Appellate Division, Fourth Department, clarifies how closely a corporation must be tied to an Indian tribe to be entitled to tribal sovereign immunity.

Defendant, Lewiston Golf Course Corporation, was an Indian tribe-affiliated entity formed under the laws of the Seneca Nation of Indians. Lewiston hired the plaintiffs, Sue/perior Concrete & Paving, Inc. to construct a golf course that would increase revenue for an adjoining casino. The casino was owned by Lewiston’s parent company, Seneca Niagara Falls Gaming Corporation. Seneca Niagara Falls Gaming Corporation was in turn owned by another corporation, which itself was in turn owned by the Seneca Nation. Thus, the Seneca Nation was Lewiston’s ultimate owner, but the Nation was three steps removed from construction of the golf course. The construction project took over a year longer than estimated, and upon completion Sue/perior sued Lewiston for $4.1 million for extra work performed as well as delay-related damages. Lewiston moved to dismiss on the grounds that they were entitled to the Seneca Nation’s sovereign immunity.

West Virginia’s High Court Holds Defective Workmanship Causing Bodily Injury or Property Damage Does Constitute an “Occurrence” Under Standard CGL Policy

Jul 12 2013

By: Robert F. Pawlowski & Matthew S. Sachs, K&L Gates, Newark

West Virginia has joined the majority of states recognizing coverage for bodily injury and property damage claims arising out of defective workmanship. Influenced by the growing number of states allowing for such coverage, the Supreme Court of Appeals of West Virginia rejected prior rulings and recently held that defective workmanship causing bodily injury or property damage constitutes an “occurrence” under a policy of commercial general liability (“CGL”) insurance. Cherrington v. Erie Insurance Prop. & Cas. Co., Case No. 12-0036, 2013 WL 3156003 (W.Va. June 18, 2013) (“Cherrington”). In so holding, the Cherrington Court expressly overruled three of its prior decisions, decided between 1999 and 2005, holding that CGL policies do not cover defective workmanship claims.

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Maritime Law Does Not Preempt State Safety Laws When The State Laws Do Not Unduly Interfere With Maritime Law

Jun 18 2013

Durando v. City of New York, 963 N.Y.S.2d 670 (N.Y. App. Div. 2013)

In this case, the New York Appellate Division, Second Department, addressed the interaction of New York state construction law and federal maritime law in the context of a construction worker’s personal injury suit, and held that local regulations will not be preempted when they do not unduly interfere with a fundamental characteristic of maritime law or the free flow of maritime commerce.

New Jersey Court Requires Materials Suppliers to Ascertain Source of Payments Made By Insolvent Subcontractors Under New Jersey Lien Law

Apr 12 2013

L&W Supply Corp. v. DeSilva, 429 N.J. Super. 179 (N.J. Super. Ct. App. Div. 2012)

In this case, a New Jersey appellate panel expands and clarifies a material supplier’s obligations to determine the source of payments made by purchasers of materials and allocate the payments properly under the New Jersey Construction Lien Law, N.J.S.A. 2A:44A-1, et. seq. (the “Lien Law”).

Pursuant to the Lien Law, a contractor or supplier who is owed payment for work or materials is permitted to file a lien against the real property on which the improvements were constructed. L&W Supply, 2012 WL 6599966 at *1. The purpose of the Lien Law is two-fold. First, it ensures that suppliers are paid for materials supplied during construction. Second, it protects owners from paying more than once for the same work or materials. In order to facilitate the second purpose of the Lien Law, the value of a materials supplier’s lien fund is limited to the unpaid portion of the contract price for the contract for which the unpaid materials were utilized.

Evidence of Substantial Completion Critical to Statutes of Limitation and Repose Defenses

Jan 22 2013

Sunset Presbyterian Church v. Brockamp & Jaeger, Inc., 254 Or. App. 24 (Or. Ct. App. 2012)

In 2009, plaintiff church sued defendants, a general contractor and a number of subcontractors, alleging negligence claims for defective work on a new church, where services began in 1999. The trial court granted summary judgment to the defendants based on expiration of statute of limitation and statute of repose time periods.

The general contractor “contended that the two-year statute of limitation . . . had begun to run in 1999 and barred plaintiff’s claims against it.” It relied on a contractual provision that provided that all statutes of limitation for claims arising from the construction “would begin to run from the ‘date of substantial completion,’” which the contractor asserted occurred in 1999 “when plaintiff occupied and used the facility for its intended purpose.” The trial court granted the contractor summary judgment dismissing the case. The appellate court reversed, finding the general contractor failed to produce evidence of the certificate of substantial completion (distinguished from substantial completion by occupancy) as required by the contract, which was critical to commence of the statute of limitations.

Washington Court of Appeals Holds that Summary Judgment is Proper if the Non-Moving Party’s Expert Opinion is Inadmissible Under Frye

Jun 27 2012

Lake Chelan Shores Homeowners Ass’n v. St. Paul Fire & Marine Ins. Co., 167 Wn. App. 28, 272 P.3d 249 (Wash. Ct. App. 2011)

Although summary judgment is improper when opposing experts present conflicting testimony on a genuine issue of material fact, this case demonstrates that a trial court can grant summary judgment if the non-moving party’s expert testimony is inadmissible under the Frye standard.

In this case, a homeowners association sought insurance coverage when it discovered that its condominiums had been damaged by rot. The association offered the expert testimony in question as the only proof that the building damage should be covered by the insurance policy. The Washington Court of Appeals, Division I, held that summary judgment was proper because, although the opposing experts’ testimonies did conflict, the association did not offer admissible testimony to create a genuine issue of material fact regarding the source of the building damage.

The Perils of Settlement Releases on Subsequent Litigation of Assigned Claims

Jun 19 2012

A&T Siding v. Capitol Specialty Ins., No. 3:10-cv-980-AC, 2012 WL 707100 (D. Or. Mar. 1, 2012)

A siding subcontractor sued the CGL insurance carrier to recover amounts claimed due under a policy that was for the benefit of a condominium homeowners association. This lawsuit arose when a general contractor was sued by the association for construction defects and the general contractor in-turn sued the subcontractor for negligent construction. The subcontractor tendered its defense to Capitol and Zurich, each of which initially participated in the defense. Capitol subsequently withdrew its defense because it decided the alleged defects and damage took place prior to inception of its policy.

Catagory:Case Summaries