By Mathias Cheung 1

The specialist nature of the English Bar brings with it a blessing and a curse: on the one hand it is conducive to breeding practitioners who are experts in their respective specialist fields; on the other hand it is all too easy to fall into the habit of thinking about the law as if it is compartmentalised into hermetically sealed silos.

One would therefore be forgiven for thinking that construction law and maritime/shipping law respectively fall within two such silos, the two being very distinct areas of practice even though they both fall under the broader umbrella of commercial law. It is right to say that a construction practitioner would very rarely partake in the work of a shipping lawyer, and vice versa. However, it does not follow that construction law and maritime law are two unrelated bodies of law which do not speak to each other (like the metaphorical “ships passing in the night”).

Quite the contrary, if one surveys the case law on BAILII and in the Building Law Reports, one can readily find various instances where the Technology and Construction Court (TCC) cites from and relies on a principle laid down in a shipping case reported in the Lloyd’s Law Reports. This should hardly come as a surprise – after all, as law students, we were often reminded of Maitland’s well-known saying that every piece of legal history forms part of a “seamless web”,2 and the Dworkinian theory of “law as integrity” which requires the Herculean judge to decide cases in the way that “both fits and justifies what has gone before”.3

This interconnectedness between maritime/shipping cases and construction cases can be illustrated by reference to a few examples of cross-fertilisation between these two equally prolific areas of law.

(i) Conditions precedent

Every construction lawyer is familiar with the perils of failing to comply with contractual notice requirements for claims under a construction contract, be it for extensions of time, loss and expense or additional costs of variations. The concept of a contractual “time-bar” in construction claims is itself founded on the contract law principles relating to the interpretation and application of conditions precedent.

The locus classicus for any consideration of whether a notice requirement amounts to a condition precedent is, without a doubt, the early maritime case of Bremer Handelsgesellschaft mbH v Vanden-Avenne Izegem PVBA,4 where the House of Lords had to consider whether a seller’s cancellation notice under a shipping contract for the sale of soya beans would be invalid if the seller failed to give reasons for the cancellation without delay.

In Bremer, Lord Wilberforce laid down a threefold test which is now the lodestar for determining whether a clause amounts to a condition precedent – this depends on: (i) the form of the clause; (ii) the relation of the clause to the contract as a whole; and (iii) general considerations of law.5 Lord Salmon further observed that a clause which is intended as a condition precedent would be expected to “state the precise time within which the notice was to be served, and to have made plain by express language that unless the notice was served within that time, the sellers would lose their rights under the clause”.6

Since then, the TCC has cited and applied Bremer on a number of occasions when considering whether notice requirements under a construction contract should be construed as conditions precedent. For instance, in WW Gear Construction Ltd v McGee Group Ltd (which concerned whether the notice requirements for a loss and expense claim under an amended JCT form of contract amounted to a condition precedent), Akenhead J cited Lord Wilberforce’s test in Bremer and described this as part of “the basic rules of construction”.7 Similarly, in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar, Akenhead J cited Lord Salmon’s speech in Bremer when considering whether the termination formalities under an amended FIDIC Yellow Book contract amounted to a condition precedent.8

Therefore, it is not hyperbole to say that the maritime case of Bremer raised the bar for future arguments regarding time bars in construction disputes (and indeed other commercial disputes), and that it is a prime example of the interplay between maritime cases and construction cases.

(ii) Causation

The Supreme Court decision of ENE Kos 1 Ltd v Petroleo Brasiliero SA (The Kos) 9 shows that the dialogue between maritime law and construction law is very much alive, and certainly when it comes to the principles of causation which are highly relevant in construction claims (whether for delays or for defects).

The Kos decision is, at its heart, a charterparty dispute concerning whether a charterer was liable to a shipowner under a contractual indemnity in respect of a loss which flowed from two effective causes, only one of which fell within the scope of the indemnity. The majority of the Supreme Court found that the charterer was indeed liable because it was sufficient that the risk covered by the indemnity was one of the effective causes, and Lord Clarke held that “it does not matter whether it was the only effective cause”.10

This represents the high point of the modern case law on principles of causation, which signals a more pragmatic common-sense approach in favour of looking at effective causation rather than a strict adherence to the need for a single “but for” cause.

Despite the fact that The Kos is a maritime case, the TCC has since cited and followed the approach in that case to apply the test of effective causation in construction disputes. For instance, in Greenwich Millennium Village Ltd v Essex Services Group plc and Others, Coulson J followed The Kos and found that it was sufficient that the mechanical services sub-sub-sub-contractor was liable under a contractual indemnity insofar as its workmanship issues in a cold-water system was one of two effective causes of the flooding of the property.11

More recently, in Martlet Homes Ltd v Mulalley & Co Ltd, HHJ Stephen Davies followed ENE to adopt a test of effective cause in order to award substantial damages to the owner of five tower blocks for the costs of remedying defective cladding works.12 This is particularly significant given that cladding claims have mushroomed in recent years, and the practical impact of the Kos line of non-construction cases on causation defences in a construction context cannot be overstated.

(iii) Duties of expert witnesses

In recent years, the role and duties of an independent expert witness in construction disputes have come under close scrutiny in the TCC, and judges have more than once admonished parties and their experts for a failure to adhere to the applicable principles in this regard. The most oft-cited summary of those principles can be found in the maritime case of National Justice Compania Naviera SA v Prudential Assurance Co Ltd (commonly known as The Ikarian Reefer).13

The Ikarian Reefer concerned a claim under a marine insurance policy, and the underwriters sought to avoid liability by contending that the vessel was deliberately run aground and set on fire. In the course of reaching his decision, Cresswell J provided what became a quintessential seven-point summary of the duties of an expert witness in civil cases, including in particular his/her duty to “provide independent assistance to the court by way of objective unbiased opinion” and “never assume the role of advocate”.14

There is no shortage of examples where the TCC has cited and applied The Ikarian Reefer on the topic of experts’ duties: see, for example, Bank of Ireland and Another v Watts Group plc (where Coulson J said that for one expert, “it might be said that The Ikarian Reefer was a ship that passed in the night”),15 and Blackpool Borough Council v Volkerfitzpatrick Ltd and Others (where HHJ Davies observed that The Ikarian Reefer “has been widely applied, remains authoritative and repays setting out in full”).16

The impact of The Ikarian Reefer perhaps reached its crescendo in the TCC decision of Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd,17 in which Fraser J emphasised that “[n]o expert should allow the necessary adherence to the principles in The Ikarian Reefer to be loosened”, and lamented that it is “a matter of concern that in a TCC case, with the sums at stake exceeding 10 million, there should be such a preponderance of partisan experts, all called by the same party”.18 This is yet another good example of the continuing impact of maritime case law in the realm of modern construction disputes.

(iv) Performance guarantees

If there remain any doubts that construction law regularly draws inspiration from maritime and other commercial cases when deciding analogous cases in a construction context, then a survey of the cases reported in the Building Law Reports regarding the enforcement of performance bonds in construction projects would dispel such doubts. Indeed, it would be immediately apparent that when considering attempts to resist a call on a performance bond, the TCC has routinely adopted the principles laid down in commercial cases reported in the Lloyd’s Law Reports regarding letters of credit/performance guarantees.

A seminal case in this regard is the decision of Group Josi Re v Walbrook Insurance Co Ltd and Others, in which the Court of Appeal considered an injunction application to restrain payment under a letter of credit opened by the claimant in return for the defendant paying over loss reserves in respect of reinsurances under a number of reinsurance treaties.19 Staughton LJ held that absent fraud by the seller presenting documents which was known to the confirming bank at the time, the court would not restrain a bank from paying a letter of credit nor a beneficiary from seeking payment.20

Further, in the Commercial Court decision of Cargill International SA and Another v Bangladesh Sugar & Food Industries Corporation 21 (which concerned a performance guarantee in respect of a supply of sugar and a claim by the buyer under that guarantee for the late arrival of the shipment), Morison J observed that it was implicit in the nature of a bond that “there will, at some stage in the future, be an ‘accounting’ between the parties in the sense that their rights and obligations will be finally determined at some future date”, and the seller would be contractually entitled to recover any overpayment from the buyer.22

These decisions now form the bedrock of the TCC’s approach to attempts to restrain demands for payment under performance bonds relating to construction projects. In particular, the Group Josi decision is routinely cited and applied by the TCC as the starting point for any such injunction application: see, for instance, Simon Carves Ltd v Ensus UK Ltd (where Akenhead J restrained a demand under an “on demand” bond where the demand would be in breach of the underlying contract), 23 and Doosan Babcock Ltd v Comercializadora de Equipos y Materiales Mabe Limitada (where Edwards-Stuart J similarly restrained a demand under two performance guarantees which were kept in existence by failing to issue takeover certificates under the underlying contract).24

Here, perhaps more than in any other areas, the line between construction cases and other maritime/commercial cases is very much blurred to a vanishing point. This is to be commended, as the law ought to treat similar security instruments in all kinds of commercial transactions on the same basis, and the TCC is obviously right not to shut its eye to the courts’ approach in other fields of commercial life.

Conclusion

The above examples are, of course, by no means exhaustive. Indeed, interesting maritime cases continue to be decided every day in the Commercial Court and the appellate courts, one recent example being RTI Ltd v MUR Shipping BV 25 on the interpretation of a force majeure clause in a charterparty and the requirement that the affected party must use reasonable endeavours to overcome a force majeure event. That is yet another maritime case whose effect will no doubt be felt in future construction disputes concerning arguments of force majeure.

All this serves as a constant reminder for us, as commercial litigators, to look above and beyond the parapet of our own specialist areas and have one eye on judicial developments in other neighbouring areas of law. As far as the specific cross-over between construction and maritime cases is concerned, that is not only beneficial but essential to the healthy growth of construction law as an important and coherent part of English commercial law.