Authors: Nick Oury, Senior Associate, Disputes, Tokyo and Jean Hamilton-Smith, Associate, Disputes, Tokyo
A commonly encountered provision in the standard form JCT Building Contract (2005 edition) was interpreted by the Court of Appeal to include an implied obligation on a developer to use “all due diligence” to obtain planning approvals. The phrase “all due diligence” was held not to require the developer to ensure that planning approvals were in fact granted, or that they were granted within sufficient time to prevent delays. At most it required the developer to make a timely application containing sufficient information and to co-operate with the Local Authority during the planning process.
The decision demonstrates the limits of the obligations commonly entered into by developers in the UK in relation to planning approvals.
In Clin v Walter Lilly, Jean-Francois Clin (“Developer”) owned two adjoining mid-Victorian terrace houses in London. Walter Lilly (“Contractor”) entered into a contract with the Developer to demolish and reconstruct the buildings into a single dwelling home.
When work commenced, the local planning authority (“Local Authority”) notified the Contractor that some of the demolition amounted to “substantial demolition” within the meaning of the applicable statute. “Substantial demolition” required conservation area consent (“Planning Approvals”), which had never been sought or granted.
The demolition work was suspended. By the time the design was suitably revised, and necessary permissions were granted, the project had been suspended for a year.
A dispute arose concerning which party was responsible for the delay. The Contractor sought an extension of time (“EOT”) of 53.2 weeks. The Developer defended the claim.
The Court of Appeal was not required to determine the EOT claim. Rather, the appeal concerned whether the judge at first instance had correctly answered preliminary legal questions, including a question as to which party had accepted the risk of obtaining Planning Approvals. Naturally, if the Contractor had accepted the risk, its EOT claim would have limited prospects of success.
The JCT Building Contract did not impose on either party an obligation to apply for, or obtain, Planning Approvals.
In the absence of an express term, the court decided there must be an implied term that the Developer was the party responsible for seeking Planning Approvals. This was because the Developer retained the requisite project knowledge long before the Contractor was ever invited to tender for the work.
The parties disagreed on how the implied term should be framed. The Contractor argued the Developer was obliged to ensure Planning Approvals were in fact granted, or granted within sufficient time to prevent delay. The court rejected this argument, deciding instead that the Developer was not under an absolute implied obligation to actually secure the Planning Approvals.
The Developer was required merely to exercise “all due diligence” by making a timely application containing sufficient information, and cooperating with the Local Authority throughout the statutory process.
A question also arose concerning which party would bear the risk of delays caused by the unreasonable actions of a third party, here the Local Authority in its conduct concerning the Planning Approvals. The judge at first instance found such delays should “lie where they fall” – meaning neither party should have a claim against the other in respect of delays caused by the unreasonable actions of the Local Authority.
The Court of Appeal overturned that analysis. The implied term did not neutralise or override any of the parties’ other obligations in the contract. Although the court concluded that the answer would depend entirely upon the facts – if the Developer discharged its obligation to exercise “all due diligence”, it seems the Developer would succeed in rejecting the Contractor’s EOT claim, even if the Local Authority’s conduct was unreasonable. If however, the Developer failed to exercise “all due diligence”, the Contractor would likely receive an EOT due to the Developer’s default (which is a Relevant Event triggering an EOT under the JCT form). However, the final outcome of the EOT claim will only be known after a further factual hearing.
For more information please contact:
Jean Hamilton-SmithAssociate, Disputes, Tokyo
+81 3 5412 5463
Michael MendelblatProfessional Support Lawyer, Real Estate Construction and Engineering, London
+44 20 7466 2535