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Early use v partial possession in JCT contracts: A grey area

23/02/2021

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United Kingdom

Fieldfisher contentious construction specialist Shannon Hellyer considers how a lack of clarity over the manner in which an employer is using a premises can lead to disputes.

 
The JCT suite of contracts allows employers to take partial possession of the works, subject to the contractor's consent. However, they also allow the parties to agree for the employer to have early use of all or part of the works.

In this context, a potential dispute that might arise is whether the employer has taken partial possession, or has 'early use'.

The contractor will want the employer's action to be classified as the former, as it will impact liquidated damages and rectification of defects. Unsurprisingly, the employer will argue for the latter for the same reasons.

Unfortunately, there is little case law to assist in resolving such a dispute.

Early use

The relevant provision is 2.6.1 of the JCT Intermediate Building Contract with contractor's design (ICD), which reads (with emphasis added).

"Notwithstanding clause 2.4, the Employer may, with the Contractor's consent, use or occupy the site or the Works or part of them, whether for storage or otherwise, before the date of issue of the Practical Completion Certificate or relevant Section Completion Certificate. Before the Contractor gives his consent to such use or occupation, the Party responsible for the Works Insurance Policy and/or, where there are Existing Structures, for any insurance cover relating to them shall notify the insurers and obtain confirmation that such use or occupation will not prejudice the insurance."

There are no consequences for an employer taking early use. The contractor's obligations to complete the works by the Date for Completion remain unchanged.

The employer is allowed to "use or occupy" the site or works and can do so "whether for storage or otherwise", which is quite open-ended.

Partial possession

The relevant provisions of the JCT Design and Build Contract are set out below:

              Contractor's consent

2.25       If at any time or times before the date of issue by the Architect/Contract Administrator of the Practical Completion Certificate or relevant Sectional Completion Certificate the Employer wishes to take possession of any part or parts of the Works or a Section and the Contractor’s consent has been obtained, then, notwithstanding anything expressed or implied elsewhere in this Contract, the Employer may take possession of such part or parts. The Architect/Contract Administrator shall thereupon give the Contractor notice on behalf of the Employer identifying the part or parts taken into possession and giving the date when the Employer took possession (“the Relevant Part” and the “Relevant Date” respectively).

              Practical completion date

2.26       Practical completion of the Relevant Part shall be deemed to have occurred, and the Rectification Period in respect of the Relevant Part shall be deemed to have commenced, on the Relevant Date.


Liquidated damages – Relevant Part

2.29       As from the Relevant Date, the rate of liquidated damages stated in the Contract Particulars in respect of the Works or Section containing the Relevant Part shall reduce by the same proportion as the value of the Relevant Part bears to the Contract Sum or to the relevant Section Sum, as shown in the Contract Particulars.

The employer taking partial possession has significant consequences for practical completion (which affects rectification of defects), and the rate of liquidated damages.

It also means the contractor is no longer obliged to complete that portion of the works (as it is already "practically complete").

It is clear why parties may disagree regarding early use v partial possession.

An important difference is that the process of partial possession involves the issuing of a notice by the architect/contract administrator. This notice is important, as it sets out which part of the works has been given partial possession.

Case law

This issue has not recently been the subject of judicial scrutiny. The leading case is Impresa Castelli Spa v Cola Holdings Ltd [2002] EWHC 1363 (TCC) (Impresa).

Impresa deals with a situation where an employer under an older JCT contract had (according to the employer) taken early use of a portion of the works but has otherwise left it within the possession of the contractor.

At paragraphs 23-24, the Court said:

23.         "As a starting point, it is helpful to consider the nature of the three different states of 'possession of the site', 'partial possession of the works' and 'use and occupy the site or the works' that are provided for in the conditions. It is clear that the nature of the possession and partial possession that are provided for is one of exclusive possession by the contractor or, once partial possession is taken, by the employer. The contractor, following its giving up possession or partial possession, has no further right to enter the part of the works taken possession of save for the express purpose of making good work as part of its obligation to make good defects in the work.

24          On the other hand, the use and occupation of the works by the employer that is referred to can encompass a wide range of situations since, as provided for in clause 23.3.1, this can be for the purposes of the storage of the employer's goods or for any other purpose defined by the employer when requesting this facility from the contractor. This wide range of circumstances is provided for by the word 'or otherwise' in clause 23.3.2. In all of these situations, the contractor retains exclusive possession of the parts of the works affected by such use and occupation but, by way of what is in effect a sub-licence, the contractor allows the employer to use or occupy the land to the extent necessary for the particular purposes that the employer has in mind".

Based on Impresa, the question is whether the contractor has given up "exclusive possession". Importantly, the court also concluded that early use could amount to anything.

There are many situations in which the question of which party has exclusive possession is easily answered. However, in circumstances where it is not clear, or is contentious, the parties will need to argue over the specific facts. 

The process of partial possession involves the issuing of a notice to that effect. Where a notice was not issued, it may be that the architect/contractor administrator has failed to follow the procedure set out in the contract, or could merely be a fact supporting a conclusion that the employer had taken early use.

If the former, the contractor should hardly be punished for this failure. Unfortunately, contractually speaking, the answer is not clear.

A case in which this point is discussed is Skanska Corporation (Regions) Limited v Anglo Amsterdam Corporation Limited 84 Con LR 100 (Skanska).

Skanska is better known for being authority on the question of whether partial possession can be taken over the whole of the works. However, late in the appeal, Anglo-American tried to raise the point that there was no notice of partial possession, and therefore partial possession was impossible in any event.

The court declined to decide this point. At paragraph 53.1, the court said:

"Anglo-Amsterdam never raised in the arbitration any question about the service of a notice by Skanska under clause 17.1. It never contended that such notice had never been served nor that such a notice was a condition precedent to the operation of clause 17. Furthermore, no good reason was advanced by Anglo-Amsterdam for allowing it to raise either issue at this late stage of the dispute. It follows that the third question of law is to be considered on the basis that the procedure provided for in clause 17 was followed or that any failure to follow that procedure does not now preclude Skanska from relying on that clause".

The judgment proceeds on the basis that the partial possession procedure had been followed, but the court did not consider whether the absence of a notice would preclude a finding of partial possession.

The question that needs to be answered is whether the employer has taken "exclusive possession" of a portion of the works, or if it is a lesser occupation.

Further, it remains unclear whether the issue of a notice of partial possession is a condition precedent for partial possession, or whether a court will be content to find it has been effected without such a notice.

This article was authored by Shannon Hellyer, construction associate at Fieldfisher.
 
 

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